Accounting conservatism and firm performance during the COVID-19 pandemic

Abstract

We explore whether firms with more conditionally conservative accounting practices have higher stock returns than other firms during the Covid-19 outbreak. We find evidence that Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges applying more conditionally conservative reporting have lower declines in stock return performance during the Covid-19 outbreak relative to other firms. We also find that the beneficial role of conditional conservatism is higher when firms have greater information asymmetry following the Covid-19 pandemic. Our results are robust to various model specifications with four different measures of conservatism and an alternative return window.