Accounting Conservatism and the Stock Market

Insights from Three Decades of Research and New Evidence from the Italian Setting

Author: Carlo D'Augusta

Publisher: Springer Nature Switzerland

Book Series : SpringerBriefs in Accounting

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

Table of Contents

About this book

This book comprehensively examines accounting conservatism and its relationship with the stock market. Through a historical overview and a review of recent literature, it explores the evolution of conservatism research and the conceptual developments, measurement advancements, and empirical findings produced by academic scholars over the last decades. Additionally, it critically evaluates the applicability of conservatism models developed in the U.S. market to the Italian setting, offering a thorough analysis of their validity. Furthermore, the book presents novel empirical findings on conservatism's impact on the Italian stock market during the Covid-19 pandemic. This nuanced exploration offers valuable insights for academics, practitioners, and researchers seeking to understand the complexities of financial reporting practices in diverse market environments.

Frontmatter

Chapter 1. Introduction

Abstract

This chapter introduces the book by highlighting the historical significance and evolving perspectives of conservatism in accounting. After discussing the roots of conservatism and the resurgence of interest by the end of the twentieth century, the chapter sets the stage for the book's exploration of theoretical constructs and empirical models used to study conservatism, emphasizing the importance of understanding its implications in different market contexts, particularly in Italy. The chapter also outlines the book's structure, detailing the focus on conservatism's impact on the Italian stock market, especially during the Covid-19 crisis and the subsequent recovery period.

Carlo D’Augusta

Chapter 2. Conceptual Developments

Abstract

This chapter provides an in-depth examination of the historical evolution of key constructs in conservatism literature. It begins with a discussion of early perspectives on conservatism, followed by a review of significant theoretical insights from modern accounting literature over the past decades, with a particular focus on distinguishing between various forms of conservatism.

Carlo D’Augusta

Chapter 3. Measurement of Conservatism for Empirical Research

Abstract

This chapter reviews the primary empirical models used in conservatism literature to identify manifestations of conservatism and its connections with capital market determinants and outcomes. It discusses the most widely adopted methods for measuring conditional conservatism, highlighting the strengths and weaknesses of these models. Additionally, the chapter covers the measurement of different forms of conservatism, including unconditional conservatism, balance sheet conservatism, and non-discretionary conservatism.

Carlo D’Augusta

Chapter 4. Conservatism and the Stock Market: Major Empirical Findings from Three Decades of Research

Abstract

This chapter provides an overview of key papers in conservatism literature related to the stock market. It begins by exploring the interaction between conservatism, agency conflicts, and corporate governance. Next, it reviews the literature on stock market forces that drive conservatism. The chapter then examines the effects of conservatism on the stock market and its relationship with the broader macroeconomic environment. It concludes by discussing the association between conservatism and voluntary disclosures, including a review of relevant international literature.

Carlo D’Augusta

Chapter 5. Conservatism’s Role in the Italian Stock Market: Three Empirical Studies

Abstract

This chapter presents three empirical studies on the relationship between conservatism and the Italian stock market. The first study examines alternative model specifications, comparing findings with U.S. market literature to enhance understanding of financial reporting practices in different markets. It also investigates how capital market pressures influence conservatism and evaluates firm-year-specific conservatism proxies in the Italian context. The second study analyzes conservatism’s impact on the Italian stock market during the Covid crisis, focusing on abnormal returns, daily return volatility, and abnormal trade patterns around and after the national lockdown. The third study examines whether Italian firms reduced conservatism during the post-Covid recovery, revealing that firms with strong capital market demands maintained conservative practices while others did not.

Carlo D’Augusta

Chapter 6. Concluding Remarks

Abstract

This chapter concludes by summarizing key insights from the book. Over the last three decades, the literature has revealed conservatism’s complex and multi-faceted relationship with the surrounding economic environment, specifically focusing on the stock market. Future studies should examine these aspects in varied contexts, especially in Italy, to address unanswered questions about conservatism’s broader economic implications.

Carlo D’Augusta

Title: Accounting Conservatism and the Stock Market
Author: Carlo D'Augusta
Publisher: Springer Nature Switzerland
Electronic ISBN: 978-3-031-67145-6
Print ISBN: 978-3-031-67144-9
DOI: https://doi.org/10.1007/978-3-031-67145-6