The Effect of Corporate Life Cycle on Accounting Conservatism

• In Event: Financial Accounting II

Abstract

The purpose of this study is to investigate whether and how accounting conservatism varies across a firm’s life cycle. Also, we examine the predictive power of conservatism across firm life cycle stages for future change in profitability. Using a sample of 67,384 firm-year observations from 1989 to 2015, we find that as firms mature, they show more conservatism in financial reporting, but less conservatism as they enter the decline stage. Moreover, we find that current accounting conservatism is positively associated with future change in profitability, and the association between current accounting conservatism and future change in profitability varies across a firm’s life cycle stages.

Authors

• Hoyoung Kim, Kent State University

• Pervaiz Alam, Kent State University