The Effect of Conservatism on the Performance of Technology Firms

• In Event: Financial Accounting II

Abstract

This study investigates the impact of accounting conservatism on the performance of technology firms. Extending the findings of Chang, Hilary, and Zhang (2015) that conservatism curbs corporate innovation, we first show that R&D is informative about conservatism; firms with higher R&D intensity tend to reflect more bad news in earnings. We then document a negative association between conservatism and future performance of technology firms. Further analyses suggest that the negative impact of conservatism on firm performance is delivered through the inhibiting effect of conservatism on corporate innovation. Our findings enhance our understanding of the relation between R&D and conservatism as well as the negative economic consequences of accounting conservatism.

Authors

• Pervaiz Alam, Kent State University

• HAN GAO, Kent State University