The objective of this research is to analyze the relationship between conservative financial statements and information asymmetry in the Brazilian market. The literature claims that conservative reports can be a mechanism for offsetting investors’ expropriation risk under high information asymmetry. To test this, we analyze how conservatism reacts to shocks in firms’ information asymmetry, represented by their Ibovespa market index membership. Analyzing the composition of Ibovespa from 1999 to 2017, we find that firms included in the index have significantly lower levels of conditional conservatism than firms with similar levels of negotiability not included in the index, according to an RDD approach. Furthermore, when a firm is included in the index, it becomes less conditionally conservative, and when it is deleted, it becomes more conservative, which operates mainly through the increase (decrease) in the number of analysts following firms when they are included (deleted) in (from) the index. These results are consistent with the hypothesis that timely loss recognition follows changes in information asymmetry, indicating its role as a governance mechanism.
Comissão Organizadora
Anderson Odias da Silva
Claudia Yoshinaga
Ricardo D. Brito
Felipe Saraiva Iachan
Vinicius Augusto Brunassi Silva
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