Managerial legal liability coverage and earnings conservatism

• 成果类型: Article
• 署名作者: Chung, Hyeesoo H.; Wynn, Jinyoung R.
• 署名单位: University of Louisiana System; Louisiana Technical University; Arizona State University; Arizona State University-Downtown Phoenix
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2008.03.002
• 发表日期: 2008
• 关键词: CORPORATE CASH HOLDINGS; officers insurance; INTERNATIONAL DIFFERENCES; asymmetric timeliness; ACCOUNTING EARNINGS; to-book; governance; DIRECTORS; FIRMS; LITIGATION

摘要

This paper examines the effect of managerial legal liability coverage on earnings conservatism. Using directors' and officers' (D&O) liability insurance coverage and cash for indemnification as a proxy for managerial legal liability coverage, we find that the higher the managerial liability coverage, which reduces the expected legal liability of managers, the less conservative the firm's earnings. We also find that managerial legal liability coverage has a stronger influence on earnings conservatism in a legal regime with higher litigation risk. Our results are consistent with the threat of litigation conditioning managers to practice conservative accounting. (C) 2008 Elsevier B.V. All rights reserved.