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Financial conservatism, firm value and international business risk: Evidence from emerging economies around the global financial crisis

Machokoto, M., Areneke, G. and Nyangara, D. (2021) Financial conservatism, firm value and international business risk: Evidence from emerging economies around the global financial crisis. International Journal of Finance and Economics. 26(3), pp. 4590-4608. 1076-9307.

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Information
Abstract:
The increase in debt-free or under-levered firms (financial conservatism) is one of the most recent stylized puzzles that cannot be explained within the context of extant capital structure theories. In this paper, we exploit the 2008–09 contractions in credit supply in a quasi-natural experiment to examine whether financial conservatism affects firm value. Using a large sample of firms from seven African countries over the period 2003–2012, we find strong evidence that financial conservatism mitigates the adverse effect of contractions in credit supply on firm value for both local and international firms. Our results suggest that financial conservatism is an effective strategy for managing risks arising from contractions in credit supply and international business exposure. These findings provide novel empirical evidence on the value relevance of financial conservatism which shields firms from the adverse and far-reaching effects of contractions in credit supply.
Uncontrolled Keywords:
financial conservatism, firm value, international business risk, cross-listing, global financial crisis, legal origin, Accounting, Finance, Economics and Econometrics
Creators:
Machokoto, M., Areneke, G. and Nyangara, D.
Faculties, Divisions and Institutes:
Faculties > Faculty of Business & Law > Accounting & Finance
Date:
7 July 2021
Date Type:
Publication
Page Range:
pp. 4590-4608
Journal or Publication Title:
International Journal of Finance and Economics
Volume:
26
Number:
3
Number of Pages:
19
Language:
English
DOI:
10.1002/ijfe.2032
ISSN:
1076-9307
Status:
Published / Disseminated
Refereed:
Yes
Related URLs:
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