Accounting Conservatism And Firm Performance During The COVID-19 Pandemic

The Covid-19 epidemic and global blockade have caused significant economic losses worldwide.There are uncertainties in the severity and duration of the economic consequences of the Covid-19 epidemic.The sales and the number of employees of companies and entities have been drastically reduced,and companies have reduced operating costs and avoided bankruptcy.The sudden decline in the stock market and increased uncertainty about the future earnings prospects of companies have made the market more volatile for potential investors and shareholders.The world situation today is facing major changes unseen in a century.While our country is developing and growing rapidly,it is also encountering a series of challenges from the economic and political aspects of anti-globalization.Under the turbulent international political relations,both individual enterprises and the market environment are experiencing stronger exogenous shocks.Such shocks may come from frictions between political bodies and unknown natural disasters.Therefore,market research in an environment of high uncertainty has become a topic that is more relevant for companies and regulatory authorities.Research on the Covid-19 epidemic compared the striking similarities of the crises of the eight centuries before the Covid-19 epidemic.Recently,they emphasized that the cause,scope and severity of the Covid-19 epidemic are indeed different from past crises.These observations have inspired research on the factors that influence the response of countries,companies and individuals to the Covid-19 epidemic.In the context of the stock downturn,what characteristics make companies more immune to such shocks in the capital market is a question worthy of discussion.The Covid-19 epidemic provides an exogenous shock to market uncertainty and information asymmetry.Therefore,this article uses the Covid-19 epidemic as the background to study the relationship between accounting conservatism and stock returns during the outbreak of the Covid-19 epidemic.This article finds evidence that during the Covid-19 stock market crash,companies that adopted more robust reporting policies experienced lower stock returns.Our results are still robust in different measures of robustness,another window period for the Covid-19 outbreak,and different model specifications that include fixed effects and stock price returns before the Covid-19 outbreak.This article also examines whether the relationship between robustness and stock returns varies with information asymmetry during the outbreak of the Covid-19 epidemic.This article finds evidence that only when companies face greater uncertainty about their survival prospects during the outbreak of the Covid-19 epidemic,the positive correlation between conditional soundness and stock returns will become more significant.These results show that even in a severe market downturn,when companies face a low-information asymmetric environment,the benefits of robustness are minimal.In general,the results of this article support the theory that accounting conservatism can increase corporate value by reducing private information that cannot be disclosed in the management of public information,promoting the information asymmetry environment,and increasing investor information.