RESEARCH ARTICLE
The role of accounting conservatism in corporate innovation
Min Bai,
Pamela Kent,
Sujin Kim,
Shan Li,
Min Bai
School of Economics and Management, University of Science and Technology Beijing, Beijing, China
Search for more papers by this authorPamela Kent
Business School, The Queensland University of Technology, Brisbane, Queensland, Australia
Search for more papers by this authorSujin Kim
Business School, University of Adelaide, Adelaide, South Australia, Australia
Search for more papers by this authorCorresponding Author
Shan Li
Institute for Financial and Accounting Studies, Xiamen University, Xiamen, China
Correspondence
Shan Li, Institute for Financial and Accounting Studies Xiamen University Xiamen, China.
Email: [email protected]
Search for more papers by this authorMin Bai,
Pamela Kent,
Sujin Kim,
Shan Li,
Min Bai
School of Economics and Management, University of Science and Technology Beijing, Beijing, China
Search for more papers by this authorPamela Kent
Business School, The Queensland University of Technology, Brisbane, Queensland, Australia
Search for more papers by this authorSujin Kim
Business School, University of Adelaide, Adelaide, South Australia, Australia
Search for more papers by this authorCorresponding Author
Shan Li
Institute for Financial and Accounting Studies, Xiamen University, Xiamen, China
Correspondence
Shan Li, Institute for Financial and Accounting Studies Xiamen University Xiamen, China.
Email: [email protected]
Search for more papers by this authorFirst published: 28 October 2024
[Correction added on 18 November 2024, after first online publication: Shan Li has been added as the new corresponding author].
Abstract
We provide evidence to determine whether conservative financial reporting is associated with firm-level investments in innovation in China. We find that firms adopting a more conservative reporting policy invest substantially more in innovative projects. We also find that conservative reporting practices improve the association between executives' pay-for-performance and a firm's innovation efforts. The association between conservatism and firm-level innovation is concentrated in firms that are in the non-high-tech industries, that have higher financial leverage and more product market competition. Our paper adds to public policy by providing evidence of the beneficial influence of accounting conservatism on higher innovation investment.
Open Research
DATA AVAILABILITY STATEMENT
Data derived from public domain resources.
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