ACCOUNTING CONSERVATISM, ENVIRONMENTAL UNCERTAINTY AND THE CAPITAL STRUCTURE

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Abstract

The purpose of this paper is to examine the effect of reporting conservatism on firm’s capital structure decisions and the role of environmental uncertainty as a moderating variable. While the role of conservatism has been investigated in certain debt-contracting setting, evidence is sparse about the effect of conservatism on the degree of financial leverage. We examine this issue using a sample of Australian firms from 1992 to 2005. We find that accounting conservatism positively affect a firm’s leverage structure. Further, we find that the relation between accounting conservatism and firm leverage is moderated by environmental uncertainty context; however this finding is not robust to all three proxies that we used to measure conservatism.

Keywords: Conservatism, Financial Leverage, Environmental Uncertainty, Australia

How to cite this paper: Habib, A., & Hossain, M. (2013). Accounting conservatism, environmental uncertainty and the capital structure. Corporate Ownership & Control, 11(1-1), 123-135. https://doi.org/10.22495/cocv11i1c1art1