Accounting Conservatism and Firm Value: Evidence from the Global Financial Crisis *

This paper studies accounting conservatism’s effects on firm value during the 2008 global financial crisis. Using a sample of 2,983 U.S. non-financial firms, we show that firms with more conservative financial reporting experience less negative crisis period stock returns. More conservative firms issue more debt and undertake more investment during the crisis period. We further show that the positive association between accounting conservatism and crisis period stock returns is more pronounced for firms with higher ex ante agency costs. Taken together, the evidence is consistent with accounting conservatism improving borrowing capacity, reducing underinvestment, constraining managerial opportunism, and enhancing firm value.