Review of Accounting Studies

, Volume 14, Issue 1, pp 88–122

Publicly traded versus privately held: implications for conditional conservatism in bank accounting

Authors

  • D. Craig Nichols
    • Johnson Graduate School of ManagementCornell University
    • Kelley School of BusinessIndiana University
  • Matthew M. Wieland
    • J. M. Tull School of Accounting, Terry College of BusinessUniversity of Georgia
Article

DOI: 10.1007/s11142-008-9082-3

Cite this article as:
Craig Nichols, D., Wahlen, J.M. & Wieland, M.M. Rev Account Stud (2009) 14: 88. doi:10.1007/s11142-008-9082-3

Abstract

Compared with privately held banks, publicly traded banks face greater agency costs because of greater separation of ownership and control but enjoy greater benefits from access to the equity capital market. Differences in control and capital market access influence public versus private banks’ accounting. We predict and find that public banks exhibit greater degrees of conditional conservatism (asymmetric timeliness of the recognition of losses versus gains in accounting income) than private banks. We predict and find that public banks recognize more timely earnings declines, less timely earnings increases, and larger and more timely loan losses. Although public ownership gives managers greater ability and incentive to exercise income-increasing accounting, our findings show that the demand for conservatism dominates within public banks and that the demand for conservatism is greater among public banks than private banks. Our results provide insights for accounting and finance academics, bank managers, auditors, and regulators concerning the effects of ownership structure on conditional conservatism in banks’ financial reporting.

Keywords

Conservatism Private and public banksAgency costsControlAsymmetric timeliness

JEL Classification

 G1G21G32M41

Copyright information

© Springer Science+Business Media, LLC 2008