The Impact of Default Risk on the Basu Measure of Accounting Conservatism

2009 ◽  
Author(s):  
Richard Zhe Wang ◽  
Ciaran Ó Hogartaigh ◽  
Tony van Zijl
Keyword(s):  
Default Risk ◽  
Accounting Conservatism ◽  
The Impact

Conditional Conservatism and Audit Fees

2014 ◽  
Vol 29 (1) ◽  
pp. 83-113 ◽  
Author(s):  
Hye Seung (Grace) Lee ◽  
Xu Li ◽  
Heibatollah Sami
Keyword(s):  
Corporate Governance ◽  
Potential Benefit ◽  
Audit Fees ◽  
Accounting Conservatism ◽  
Audit Risk ◽  
Debt Contracting ◽  
Conditional Conservatism ◽  
Governance Quality ◽  
Corporate Governance Quality ◽  
The Impact

SYNOPSIS In this study, we examine the impact of conditional conservatism on audit fees and, more importantly, the influence of corporate governance on this relationship. Prior literature presents evidence regarding explanations for the existence and pervasiveness of accounting conservatism such as compensation and debt contracting, shareholder litigation, taxation, and accounting regulation. However, there is very limited evidence or discussion of the potential benefit of accounting conservatism on audit risk and thus audit fees, and how the potential benefit can be attenuated by corporate governance quality. Using a sample of firm-year observations over the period of 2004–2009, we provide evidence consistent with conditional conservatism and firms' commitment to such conservatism reducing their audit fees. However, our evidence shows that this reduction in audit fees is moderated by higher corporate governance quality. These results have implications for auditors, regulators, standard setters, and firms' managers. In addition, our study extends the literature on the determinants of audit fees. JEL Classifications: M41; M42; D81; D22.

scholarly journals Does Banking Management Affect Credit Risk? Evidence from the Indian Banking System

2018 ◽  
Vol 6 (3) ◽  
pp. 67 ◽  
Author(s):  
Laxmi Koju ◽  
Ram Koju ◽  
Shouyang Wang
Keyword(s):  
Credit Risk ◽  
Default Risk ◽  
Banking System ◽  
Capital Requirements ◽  
Operating Efficiency ◽  
Investment Strategies ◽  
Empirical Results ◽  
Bank Managers ◽  
Credit Standards ◽  
The Impact

This study investigated the impact of banking management on credit risk using a sample of Indian commercial banks. The study employed dynamic panel estimations to evaluate the link between banking management variables and credit risk. The empirical results show that an increase in loan portion over total assets does not necessarily increase problem loans. The findings suggest that high capital requirements and large bank size do not reduce default risk, whereas high profitability and strong income diversification policies lower the likelihood of default risk. The overall empirical results supported the “operating efficiency”, “diversification” and “too big to fail” hypotheses, confirming that credit quality in the banking industry is mainly driven by profitability, banking supervision, high credit standards and strong investment strategies. The findings are relevant to bank managers, investors and bank regulators, in formulating effective credit policies and investment strategies.

scholarly journals The Impact of Accounting Conservatism on Corporate Performance Indicators in Egypt

2019 ◽  
Vol 14 (10) ◽  
pp. 1
Author(s):  
Hanaa A. El-Habashy
Keyword(s):  
Performance Indicators ◽  
Corporate Performance ◽  
Positive Impact ◽  
Accounting Conservatism ◽  
Return On Assets ◽  
Return On Equity ◽  
Accounting Performance ◽  
Conservative Accounting ◽  
The Impact ◽  
Positive Effect

This study aims to investigate the impact of conservative accounting on corporate performance indicators of Egyptian firms. A sample of balanced data for the 40 most active non-financial companies was collected in the period 2009-2014 to test hypotheses. Panel regression models were used for data analysis. Givoly & Hayn (2000) indicator is used as a benchmark for measuring accounting conservatism. The corporate performance indicators used in this study are return-on-assets (ROA) and return on equity (ROE) representing accounting performance measures, as well as Tobin’s Q which measures market performance. The results of the research show that accounting conservatism has a significant positive impact on corporate performance indicators. This reflects the positive effect of corporate performance on shareholders that leads to a strong corporate financial position. To the best of our knowledge, no study has been conducted in Egypt as an emerging economy.

scholarly journals The Impact of Banking Competition on Firm Credit Risk and Leverage

SAGE Open ◽  
2021 ◽  
Vol 11 (4) ◽  
pp. 215824402110615
Author(s):  
Chengxiao Feng ◽  
Zhubo Li ◽  
Zhen Peng
Keyword(s):  
Default Risk ◽  
Credit Constraints ◽  
Contingent Claims ◽  
Claims Analysis ◽  
Banking Competition ◽  
Leverage Ratio ◽  
Contingent Claims Analysis ◽  
Credit Risks ◽  
Default Risks ◽  
The Impact

A firm’s default risk is closely related to its macrofinancial stability. As financial reform deepens, banking competition may ease firms’ credit constraints, encouraging them to increase their leverage and default risks. This study uses contingent claims analysis to examine firms’ asset–liability ratio and default distance. We find that companies have low leverage and low overall default risks. Moreover, a pro-cyclical effect exists between leverage and economic growth. As banking competition becomes more intense, the default risk decreases, but firms’ leverage ratio rises significantly. The impact is more prominent for highly leveraged firms. Our findings also indicate that utilizing the contingent claims analysis method to measure firms’ leverage and default risks provides more accurate results. Moreover, we provide empirical evidence of the impact of banking competition on firms’ leverage and credit risks. The results suggest that enhancing financial competition has a positive effect on easing credit constraints and reducing default risks.

scholarly journals Accounting Conservatism And Firms’ Investment Decisions

2016 ◽  
Vol 32 (4) ◽  
pp. 1223-1236 ◽  
Author(s):  
Jungeun Cho ◽  
Won-Wook Choi
Keyword(s):  
Investment Decisions ◽  
Financial Statements ◽  
Accounting Conservatism ◽  
Financial Disclosure ◽  
Managerial Ownership ◽  
Conservative Accounting ◽  
Controlling Mechanism ◽  
The Impact ◽  
Timely Loss Recognition

This study examines the effectiveness of accounting conservatism in monitoring and controlling managers’ decision-making regarding opportunistic investment. We find that accounting conservatism is negatively associated with over-investment. This suggests that conservative accounting policies serve as an efficient monitoring and controlling mechanism for opportunistic investment decisions. We also find a stronger negative association between accounting conservatism and over-investment in firms with low managerial ownership and low ownership by foreign investors. The results of our analysis imply that the impact of timely loss recognition on over-investment is more significant in firms with high agency problems and weaker monitoring ability, and that this factor complements other governance mechanisms, thereby helping to control managers’ myopic investment decisions. We provide evidence for a role of financial disclosure in mitigating managers’ opportunistic over-investment decisions. Though managers’ over-investment decisions are motivated by private gain, which reduces firm performance and compromises investors’ welfare, limited research exists on the role of financial information in alleviating such behavior. We suggest that timely loss recognition in financial statements can serve as an effective monitoring mechanism to aid in control of managers’ myopic over-investment.

No-Fly Zone in the Loan Office: How Chief Executive Officers’ Risky Hobbies Affect Credit Stakeholders’ Evaluation of Firms

2021 ◽  
Author(s):  
Bo Ouyang ◽  
Yi Tang ◽  
Chong Wang ◽  
Jian Zhou
Keyword(s):  
Chief Executive Officers ◽  
Default Risk ◽  
Chief Executive ◽  
Bank Loans ◽  
Bank Loan ◽  
Cost Of Debt ◽  
Data Set ◽  
Work Related ◽  
Executive Officers ◽  
The Impact

The extant research has often examined the work-related experiences of corporate executives, but their off-the-job activities could be just as insightful. This study employs a novel proxy for the risky hobbies of chief executive officers (CEOs)—CEOs’ hobby of piloting a private aircraft—and investigates its effect on credit stakeholders’ evaluation of the firms led by the CEOs as reflected in bank loan contracting. Using a longitudinal data set on CEOs of large United States-listed firms across multiple industries between 1993 and 2010, we obtain strong evidence that bank loans to firms steered by CEOs who fly private jets as a hobby tend to incur a higher cost of debt, to be secured, to have more covenants, and to be syndicated. These effects are mainly driven by banks, which perceive such firms as having a higher default risk. These relationships become stronger when the CEO is more important to the firm and/or can exercise stronger control over decision making. Supplemented by field interviews, our results are also robust to various endogeneity checks using different experimental designs, the Heckman two-stage model, a propensity score-matching approach, a difference-in-differences test, and the impact threshold of confounding variables.

THE IMPACT OF LEARNING ON BUSINESS CYCLE FLUCTUATIONS IN THE CONSUMER UNSECURED CREDIT MARKET

2018 ◽  
Vol 24 (5) ◽  
pp. 1087-1123 ◽  
Author(s):  
Matthew N. Luzzetti ◽  
Seth Neumuller
Keyword(s):  
Business Cycle ◽  
Interest Rates ◽  
Default Risk ◽  
Credit Market ◽  
Credit Spread ◽  
Cross Sectional ◽  
Business Cycle Fluctuations ◽  
Unsecured Debt ◽  
Consumer Default ◽  
The Impact

We document that the credit spread on consumer unsecured debt exhibits a persistent, hump-shaped response to an increase in the charge-off rate. This stylized fact poses a significant challenge for a standard model of consumer default in which lenders have rational expectations and, therefore, the credit spread continuously adjusts to reflect the true default incentives of each borrower. In an effort to explain this feature of the data, we construct a model of consumer default with countercyclical income risk in which lenders learn about default risk over time by observing the history of repayment decisions, as is the case in practice. In addition to matching credit spread dynamics, allowing lenders to learn about default risk substantially improves the model’s ability to generate realistic business cycle fluctuations in the consumer unsecured credit market and match the cross-sectional distribution of unsecured debt and dispersion of interest rates observed in the data.

scholarly journals The Impact of IFRS Adoption on Accounting Conservatism in the European Union

2016 ◽  
Vol 6 (1) ◽  
pp. 127 ◽  
Author(s):  
Daniel Zeghal ◽  
Zouhour Lahmar
Keyword(s):  
European Union ◽  
Empirical Study ◽  
Accounting Conservatism ◽  
International Standards ◽  
Good News ◽  
The European Union ◽  
Ifrs Adoption ◽  
Accounting Model ◽  
Year 2000 ◽  
The Impact

Purpose –The purpose of this study is to analyze mandatory IFRS adoption’s impact on accounting conservatism. Design/methodology/approach – Our empirical study is conducted on a sample of 15 European countries, observed from the year 2000 to 2010. We analyze both conditional and unconditional conservatism, which we measured, respectively, by timely bad news recognition as compared to recognition of good news and discretionary accruals. Findings – The results of the empirical study confirm a significant reduction of accounting conservatism in the IFRS adoption period. This reduction is affected by the accounting model prevailing in a particular country. Moreover, the study shows a reduction of the gap between the two accounting models in the post-IFRS adoption period. Practical implications – The results obtained would be relevant for many decision makers such as investors, standard setters, IASB, European Union countries as well as those wishing to adopt International Standards. Originality/value – Our study complements and enriches the existent literature about the impact of the International Standards adoption. It dresses an important issue in a relatively long period to better assess the impact of IFRS.

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