Director-Liability-Reduction Laws and Conditional Conservatism
Director-Liability-Reduction Laws and Conditional Conservatism
dc.contributor.author | Basu, Sudipta | |
dc.contributor.author | Liang, Yi | |
dc.date.accessioned | 2018-11-27T19:10:00Z | |
dc.date.available | 2018-11-27T19:10:00Z | |
dc.date.issued | 2018-08-27 | |
dc.description.abstract | We study non-officer directors’ causal influence on the conditional conservatism of firms’ financial statements. We treat director-liability-reduction laws enacted by the 50 U.S. states in different years since 1986 as exogenous shocks to non-officer directors’ litigation risk. We find decreases in conditional conservatism after the law enactments, which vary predictably with cross-sectional variation in the demand for conditional conservatism from shareholders and lenders. We show that these effects flow through current asset decreases and switches away from Big N auditors. The results are robust to controlling for state antitakeover laws, tests for endogenous law enactment and parallel trends, and other sensitivity checks. Our results are consistent with non-officer directors monitoring and influencing the financial reporting process and have implications for corporate governance and corporate law reforms. | |
dc.identifier.uri | http://hdl.handle.net/10125/59281 | |
dc.subject | litigation risk | |
dc.subject | corporate governance | |
dc.subject | D&O insurance | |
dc.subject | non-officer directors | |
dc.subject | board monitoring | |
dc.title | Director-Liability-Reduction Laws and Conditional Conservatism |
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