Stakeholder orientation and accounting conservatism: Evidence from State-Level constituency statutes

Suresh Radhakrishnan; Ke Wang; Zheng Wang

doi:10.1016/j.jaccpubpol.2025.107295

Stakeholder orientation and accounting conservatism: Evidence from State-Level constituency statutes

Suresh Radhakrishnan, Ke Wang^*, Zheng Wang

^*Corresponding author for this work

College of Business

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

3 Downloads (CityUHK Scholars)

Abstract

We find that the staggered adoption of state-level constituency statutes leads to a significant decrease in accounting conservatism. Constituency statutes allow directors to consider stakeholder interests when making business decisions, thereby increasing firms’ stakeholder orientation. As firms shift attention to stakeholder interests, stakeholders become less concerned about shareholder expropriation and thus demand less conservatism. Cross-sectional analyses show stronger effects for firms with greater agency conflict between shareholders and nonfinancial stakeholders (i.e., customers, suppliers, and employees) and for firms where shareholders and debtholders have lower demand for conservatism. In additional analyses, we find that the adoption of constituency statutes does allow firms to implement corporate policies that are more friendly to their employees, customers, and suppliers. We also show that the effect of constituency statutes on conservatism still holds when the statutes only cover nonfinancial stakeholders (but not debtholders). © 2025 The Author(s)

Original language	English
Article number	107295
Journal	Journal of Accounting and Public Policy
Volume	51
Online published	28 Mar 2025
DOIs	https://doi.org/10.1016/j.jaccpubpol.2025.107295
Publication status	Published - May 2025

Funding

We appreciate helpful comments from Marco Trombetta (editor), two anonymous reviewers, Andrew Bauer, Kareen Brown, Matthew Cedergren (discussant), Changling Chen, Zhihong Chen, Beatriz Garc\u00EDa Osma, Sabrina Gong, Xiaoli Hu, Ken Klassen, Jay Junghun Lee (discussant), Patricia O'Brien, Joyce Tian, Christine Wiedman, Liandong Zhang, Yanan Zhang, and workshop participants at Brock University, Central University of Finance and Economics (Beijing), University of Waterloo, the 2018 AAA Annual Meeting (Washington DC), the 2018 CAAA Annual Conference (Calgary), and the 2018 EAA Annual Congress (Milan). We also thank Yi Zhang for excellent research assistance. All errors are our own.

Research Keywords

Accounting conservatism
Constituency statutes
Customers
Employees
Stakeholder orientation
Suppliers

Publisher's Copyright Statement

This full text is made available under CC-BY-NC-ND 4.0. https://creativecommons.org/licenses/by-nc-nd/4.0/

Access Output

10.1016/j.jaccpubpol.2025.107295

279310807.pdfFinal Published version, 0.98 MBLicence: CC BY-NC-ND

Other Access Options

Check CityUHK Library

Permanent Link

Right click to copy link

Cite this

@article{4752e69c00224d96ae448d8f7ad48da6,

title = "Stakeholder orientation and accounting conservatism: Evidence from State-Level constituency statutes",

abstract = "We find that the staggered adoption of state-level constituency statutes leads to a significant decrease in accounting conservatism. Constituency statutes allow directors to consider stakeholder interests when making business decisions, thereby increasing firms{\textquoteright} stakeholder orientation. As firms shift attention to stakeholder interests, stakeholders become less concerned about shareholder expropriation and thus demand less conservatism. Cross-sectional analyses show stronger effects for firms with greater agency conflict between shareholders and nonfinancial stakeholders (i.e., customers, suppliers, and employees) and for firms where shareholders and debtholders have lower demand for conservatism. In additional analyses, we find that the adoption of constituency statutes does allow firms to implement corporate policies that are more friendly to their employees, customers, and suppliers. We also show that the effect of constituency statutes on conservatism still holds when the statutes only cover nonfinancial stakeholders (but not debtholders). {\textcopyright} 2025 The Author(s)",

keywords = "Accounting conservatism, Constituency statutes, Customers, Employees, Stakeholder orientation, Suppliers",

author = "Suresh Radhakrishnan and Ke Wang and Zheng Wang",

year = "2025",

month = may,

doi = "10.1016/j.jaccpubpol.2025.107295",

language = "English",

volume = "51",

journal = "Journal of Accounting and Public Policy",

issn = "0278-4254",

publisher = "Elsevier Inc.",

}

TY - JOUR

T1 - Stakeholder orientation and accounting conservatism

T2 - Evidence from State-Level constituency statutes

AU - Radhakrishnan, Suresh

AU - Wang, Ke

AU - Wang, Zheng

PY - 2025/5

Y1 - 2025/5

N2 - We find that the staggered adoption of state-level constituency statutes leads to a significant decrease in accounting conservatism. Constituency statutes allow directors to consider stakeholder interests when making business decisions, thereby increasing firms’ stakeholder orientation. As firms shift attention to stakeholder interests, stakeholders become less concerned about shareholder expropriation and thus demand less conservatism. Cross-sectional analyses show stronger effects for firms with greater agency conflict between shareholders and nonfinancial stakeholders (i.e., customers, suppliers, and employees) and for firms where shareholders and debtholders have lower demand for conservatism. In additional analyses, we find that the adoption of constituency statutes does allow firms to implement corporate policies that are more friendly to their employees, customers, and suppliers. We also show that the effect of constituency statutes on conservatism still holds when the statutes only cover nonfinancial stakeholders (but not debtholders). © 2025 The Author(s)

AB - We find that the staggered adoption of state-level constituency statutes leads to a significant decrease in accounting conservatism. Constituency statutes allow directors to consider stakeholder interests when making business decisions, thereby increasing firms’ stakeholder orientation. As firms shift attention to stakeholder interests, stakeholders become less concerned about shareholder expropriation and thus demand less conservatism. Cross-sectional analyses show stronger effects for firms with greater agency conflict between shareholders and nonfinancial stakeholders (i.e., customers, suppliers, and employees) and for firms where shareholders and debtholders have lower demand for conservatism. In additional analyses, we find that the adoption of constituency statutes does allow firms to implement corporate policies that are more friendly to their employees, customers, and suppliers. We also show that the effect of constituency statutes on conservatism still holds when the statutes only cover nonfinancial stakeholders (but not debtholders). © 2025 The Author(s)

KW - Accounting conservatism

KW - Constituency statutes

KW - Customers

KW - Employees

KW - Stakeholder orientation

KW - Suppliers

UR - http://www.scopus.com/inward/record.url?scp=105001155947&partnerID=8YFLogxK

UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-105001155947&origin=recordpage

U2 - 10.1016/j.jaccpubpol.2025.107295

DO - 10.1016/j.jaccpubpol.2025.107295

M3 - RGC 21 - Publication in refereed journal

SN - 0278-4254

VL - 51

JO - Journal of Accounting and Public Policy

JF - Journal of Accounting and Public Policy

M1 - 107295

ER -

Stakeholder orientation and accounting conservatism: Evidence from State-Level constituency statutes

Abstract

Funding

Research Keywords

Publisher's Copyright Statement

Access Output

Other Access Options

Permanent Link

Other Files and Links

Fingerprint

Cite this