![]() Founded by Sun Yat-sen University and City University of Hong Kong. on behalf of China Journal of Accounting Research. © 2015 Production and hosting by Elsevier B.V. ![]() Our study provides evidence that timely loss reporting affects "real" economic decisions and creates economic benefits. ![]() Consistently, we find that firms that announce large discontinuation losses reduce capital expenditures and improve timeliness of loss recognition in subsequent years. Accordingly, thereafter, the fund providers and board of directors are likely to demand improved timeliness of loss recognition and stringent scrutiny of firms' capital expenditure plans. Moreover, managers, by announcing late discontinuations of such projects, reveal their inability to select good projects and/or to contain losses, when projects turn unprofitable. Consistent with this notion, we find that timely loss recognition increases the likelihood of timely closures of unprofitable projects. However, this conjecture has not been tested empirically. Prior studies suggest that timely loss recognition in accounting earnings enables lenders, shareholders, and boards of directors to identify unprofitable projects thereby, enabling them to force managers to discontinue such projects before large value erosion occurs. Managers, however, continue to operate such projects because of their limited employment horizons and empire-building motivations (Jensen, 1986 Ball, 2001). Ideally, firms should discontinue projects that become unprofitable. Timely loss recognition Conditional conservatism Agency costs Corporate governance Project discontinuations Accounting quality Journal homepage: Timely loss recognition and termination of unprofitable projectsĪnup Srivastava a'*, Shyam Sunder b1, Senyo Tsec'2Ī Tuck School of Business, Dartmouth College, United States b University of Arizona, Department of Accounting, United StatesĬ Department of Accounting, Mays Business School, Texas A&M University, United StatesĪrticle history: Received 14 February 2014 Accepted Available online 3 July 2015 China Journal of Accounting Research 8 (2015) 147-167Ĭontents lists available at ScienceDirect Our study provides evidence that timely loss reporting affects “real” economic decisions and creates economic benefits. Accordingly, thereafter, the fund providers and board of directors are likely to demand improved timeliness of loss recognition and stringent scrutiny of firms’ capital expenditure plans. ![]() ![]() Abstract of research paper on Economics and business, author of scientific article - Anup Srivastava, Shyam Sunder, Senyo Tse ![]()
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