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Accounting conservatism, environmental uncertainty and the capital structure
journal contributionposted on 06.12.2017, 00:00 by A Habib, Mahmud Hossain
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.