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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