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Influence of Investment Efficiency by Managers and Accounting Conservatism on Idiosyncratic Risks to Investors

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  • Bo-Hung Chiou
  • Shen-Ho Chang

Abstract

This paper examines whether the investment efficiency of managers and accounting conservatism affect the idiosyncratic risks to investors. The empirical findings suggest the following. Firstly, overinvestment (underinvestment) by managers increases (decreases) idiosyncratic risks to investors. Secondly, accounting conservatism enhances information quality and lowers the idiosyncratic risks. Finally, accounting conservatism mitigates the investment inefficiency by manager and affects the idiosyncratic risks to investors, meaning it mitigates manager’s overinvestment and lowers the idiosyncratic risks to investors. In the case of underinvestment, accounting conservatism improves manager’s motivation for investment, and thus, the idiosyncratic risks to investors.  JEL classification numbers: G32, M41, D81

Suggested Citation

  • Bo-Hung Chiou & Shen-Ho Chang, 2020. "Influence of Investment Efficiency by Managers and Accounting Conservatism on Idiosyncratic Risks to Investors," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 10(1), pages 1-8.
    • Handle: RePEc:spt:admaec:v:10:y:2020:i:1:f:10_1_8
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    More about this item

    Keywords

    Idiosyncratic risk; Investment efficiency; Over-investment; Under-investment; Accounting conservatism.;
    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
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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