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Financial conservatism of private firms

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  • Bigelli, Marco
  • Martín-Ugedo, Juan Francisco
  • Sánchez-Vidal, F. Javier

Abstract

The aim of this paper is to analyze the factors that motivate private firms to follow a conservative financial policy. Using a new definition of financial conservatism, we investigate a sample of 21,959 Italian private firms for the 1998–2006 period and look for the determinants of financial conservatism according to the main theories of capital structure and financing policy. Our findings show that financially conservative firms are smaller, with more intangible and less tangible assets, lower effective tax rates and follow a pecking order style financial policy. As has been found for their public counterparts, financially conservative private firms seem to pile up cash and their leverage potential before undertaking future investments.

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  • Bigelli, Marco & Martín-Ugedo, Juan Francisco & Sánchez-Vidal, F. Javier, 2014. "Financial conservatism of private firms," Journal of Business Research, Elsevier, vol. 67(11), pages 2419-2427.
    • Handle: RePEc:eee:jbrese:v:67:y:2014:i:11:p:2419-2427
    DOI: 10.1016/j.jbusres.2014.02.009
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    7. Milad Chegini Nezhad & Roya Darabi & Fatemeh Sarraf, 2016. "Relation between Conditional and Unconditional Conservatism with Investment Opportunities," Asian Social Science, Canadian Center of Science and Education, vol. 12(5), pages 1-74, May.
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    11. Clemente-Almendros, José A. & Sogorb-Mira, Francisco, 2018. "Costs of debt, tax benefits and a new measure of non-debt tax shields: examining debt conservatism in Spanish listed firms," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(2), pages 162-175.
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    More about this item

    Keywords

    Private firms; Financial conservatism; Net Financial Position; Leverage; Capital structure;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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