Does accounting quality mitigate risk shifting?

[摘要] This study examines the effect of financial reporting quality on risk shifting, an investment distortion that is caused by shareholders;; incentives to engage in high-risk projects that are detrimental to debt holders. I use asymmetric timeliness to proxy for a dimension of accounting quality that is particularly useful to debt holders. Asymmetric timeliness is expected to improve debt holders;; ability to effectively monitor the management;;s actions and to discipline the managers when necessary. I predict that the effect of accounting quality on risk shifting will be stronger in firms with poor information environment, in distressed firms, in cash-rich firm, and after the adoption of the Sarbanes-Oxley Act of 2002. I also expect this effect to vary based on the firm;;s source of debt. The results are consistent with the predictions and robust to alternative measures of risk shifting, accounting quality, distress risk, and various control variables.

[发布机构] Massachusetts Institute of Technology