Does accounting quality mitigate risk shifting?

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.

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2009

Author dc:creator

• Loktionov, Yuri V

Advisor dc:contributor.advisor

• S.P. Kothari and Joseph P. Weber.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/58377

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/58377