Effects of corporate governance and managerial optimism on accounting conservatism and manipulation∗
نویسندگان
چکیده
We develop a model to analyze how corporate governance and managerial optimism affect firms’financial reporting choices, and managers’incentives to manipulate accounting reports. Conservative accounting is advantageous because it enables boards to act on bad news and block investment ideas that are unattractive to shareholders but attractive to management. This feature of conservatism, however, causes managers to manipulate the system in an attempt to distort boards’investment decisions. Effective board oversight curtails managers’ability to manipulate, reducing the negative side effects of conservatism. Our model predicts that stronger governance, or weaker optimism, leads to greater accounting conservatism, greater manipulation, and greater investment effi ciency. ∗We would like to thank Paul Newman, James Spindler, Alfred Wagenhofer, Yong Yu, and workshop participants at the University of Texas Law School and the 2013 Accounting Research Workshop in Basel for their helpful comments. Effects of corporate governance and managerial optimism on accounting conservatism and manipulation
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