IDEAS home Printed from https://ideas.repec.org/a/eme/parpps/par-07-2013-0067.html
   My bibliography  Save this article

Accounting conservatism, capital structure, and global diversification

Author

Listed:
  • Feras M Salama
  • Karl Putnam

Abstract

Purpose - – The purpose of this paper is to investigate the effect of accounting conservatism (as a proxy for financial reporting quality) on the degree of financial leverage. In addition, this paper examines the impact of global diversification (as a proxy for operational complexity) on the relationship between conservatism and financial leverage. Design/methodology/approach - – A panel data regression analysis is conducted for the period 2000-2006. The authors utilized a two-way fixed-effects model to control for unobservable firm characteristics and time effects that may influence the firm’s decision to report conservatively. Findings - – This paper provides empirical evidence that conservatism is positively associated with the degree of financial leverage, and the influence of conservatism on financial leverage is enhanced by the degree of global diversification. Originality/value - – A major issue in corporate finance is the identification of variables that influence corporate capital structure choices. The evidence presented in this paper reveals that more conservative financial reporting is associated with a higher degree of financial leverage in the firm’s capital structure. This effect increases with the extent of global diversification, indicating that bondholders place a higher value on conservatism when there is more information asymmetry between stakeholders and managers caused by global diversification.

Suggested Citation

  • Feras M Salama & Karl Putnam, 2015. "Accounting conservatism, capital structure, and global diversification," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 27(1), pages 119-138, February.
    • Handle: RePEc:eme:parpps:par-07-2013-0067
    DOI: 10.1108/PAR-07-2013-0067
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/PAR-07-2013-0067/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/PAR-07-2013-0067/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/PAR-07-2013-0067?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vasanthan Subramaniam & Mosharrof Hosen, 2023. "Corporate diversification and debt financing: Do family shareholders protect their control rights?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1305-1317, March.
    2. Rawan Atwa & Ruba Bsoul & Buthiena Kharabsheh & Mohammad Azzam, 2022. "The Association between Accounting Conservatism and Cash Holding, Dividends and Leverage," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 11, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:parpps:par-07-2013-0067. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.