AAA Spark Meeting of Regions

Strategic Emphasis and Accounting Conservatism

• In Event: Social Capital

Abstract

We examine how a firm’s strategic emphasis on value appropriation (VA) over value creation (VC) is associated with accounting conservatism. Such strategic emphasis is found to be positively related to accounting conservatism, which can be explained by two mechanisms: competition adjustment in the product market and risk adjustment in the financial market. Firms emphasizing VA over VC are more inclined toward accounting conservatism for (1) adjusting a rival’s production level and retaliatory behavior (i.e., competition adjustment), and (2) mitigating a manager’s opportunistic behavior in response to the shareholders’ interest in the presence of the agency problem (i.e., risk adjustment). In addition, the positive relationship between strategic emphasis on VA over VC and accounting conservatism is less pronounced when managers’ overconfidence is high. Collectively, we provide the initial evidence on the interaction between a firm’s relative strategic emphasis and accounting conservatism.

Authors

• Minyoung Noh, California State University, Los Angeles

• Jimi Park, Hawaii Pacific University

• Shijin Yoo, Korea University