Effects of corporate governance and managerial optimism on accounting conservatism and manipulation ∗

  title={Effects of corporate governance and managerial optimism on accounting conservatism and manipulation ∗},
  author={Judson Caskey and Volker Laux},
We develop a model to analyze how corporate governance and managerial optimism affect firms’financial reporting choices, and managers’incentives to manipulate accounting reports. Conservative accounting is advantageous because it enables boards to act on bad news and block investment ideas that are unattractive to shareholders but attractive to management. This feature of conservatism, however, causes managers to manipulate the system in an attempt to distort boards’investment decisions… CONTINUE READING

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