Search
Program Calendar
Browse By Day
Search Tips
Conference
Virtual Exhibit Hall
About AAA
Personal Schedule
Sign In
Extant research has demonstrated that creditors prefer conservative accounting to safeguard their interests. We extend this literature by examining whether the strength of creditors’ rights moderates their demand for accounting conservatism. To do so, we take advantage of India’s recent implementation of the Insolvency and Bankruptcy Code (“IBC”), which significantly improved the efficiency of bankruptcy proceedings, thereby strengthening creditors rights. We divide our sample into control (net zero debt firms) and treatment groups and then compare the difference between the change in the conservatism of each group from the pre- to post-IBC periods. Results reveal that firms with meaningful debt exposure exhibited less conservative reporting in the post-IBC period compared to the pre-IBC period, while no significant change in conservatism was observed among the control firms. These results are consistent with our prediction that stronger creditors’ rights diminish the importance of accounting conservatism in safeguarding the interests of creditors.
Nemiraja Jadiyappa, Indian Institute of Management, Kozhikode
Leila Emily Hickman, California Polytechnic State University, San Luis Obispo