Accounting Conservatism and the Efficient Provision of Capital to Privately Informed Firms

• 成果类型: Article
• 署名作者: Smith, Michael J.
• 署名单位: Boston University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12099
• 发表日期: 2015
• 页码: 485-+
• 关键词: earnings; incentives

摘要

This study shows that in the presence of privately informed firms the optimal level of conservatism may result in failing to finance good projects or abandoning successful ones inefficiently often compared to a no private information benchmark. The result holds for a pre-investment signal and a post-investment signal with and without renegotiation. Without private information, good firms implicitly subsidize bad ones. Privately informed good firms will not provide this subsidy. The good firms' financing terms must improve to induce them to seek financing. Conservatism improves the financing terms by protecting creditors from downside risk either by removing more bad projects from the financing pool or allowing creditors to capture their liquidation value more frequently. In all three private information settings, conservatism is useful for projects with relatively high ex ante expected returns. This is in contrast to several recent studies in which conservatism is useful only for projects with relatively low ex ante expected returns.