Conservatism, disclosure and the cost of equity capital

Artiach, Tracy and Clarkson, Peter (2014) Conservatism, disclosure and the cost of equity capital. Australian Journal of Management, 39 2: 293-314. doi:10.1177/0312896213481367

Author Artiach, Tracy
Clarkson, Peter
Title Conservatism, disclosure and the cost of equity capital
Journal name Australian Journal of Management   Check publisher's open access policy
ISSN 0312-8962
Publication date 2014-05
Year available 2013
Sub-type Article (original research)
DOI 10.1177/0312896213481367
Volume 39
Issue 2
Start page 293
End page 314
Total pages 22
Place of publication London, United Kingdom
Publisher Sage
Collection year 2014
Language eng
Abstract This study seeks insights into the economic consequences of accounting conservatism by examining the relation between conservatism and cost of equity capital. Appealing to the analytical and empirical literatures, we posit an inverse relation. Importantly, we also posit that the strength of the relation is conditional on the firm’s information environment, being the strongest for firms with high information asymmetry and the weakest (potentially negligible) for firms with low information asymmetry. Based on a sample of US-listed entities, we find, as predicted, an inverse relation between conservatism and the cost of equity capital, but further, that this relation is diminished for firms with low information asymmetry environments. This evidence indicates that there are economic benefits associated with the adoption of conservative reporting practices and leads us to conclude that conservatism has a positive role in accounting principles and practices, despite its increasing rejection by accounting standard setters.
Keyword Conservatism
Cost of equity capital
Information risk
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ
Additional Notes Published online before print: 30 May 2013.

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2014 Collection
UQ Business School Publications
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Citation counts: TR Web of Science Citation Count  Cited 3 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 3 times in Scopus Article | Citations
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Created: Tue, 11 Jun 2013, 11:58:12 EST by Karen Morgan on behalf of UQ Business School