Does Conservative Accounting Matter to Cash Dividend Policy

The story Chinese listed firms on average paid out just 22% of their earnings

The story Very few Chinese listed firms repurchased their stocks prior to 2008. Stock

Motivation Without the restriction by corporate bond covenants of Chinese listed firms, does accounting

Main Findings n Conservative accounting reduces the payment and the probability of overpayment of

Hypotheses § H 1: Ceteris paribus, firms with more conservative accounting are less likely

Hypotheses § H 3: Ceteris paribus, firms with more conservative accounting are less likely

Samples and Data Source n The new accounting standards became effective in China on

Samples and Data Source n Eliminate those sample firms without ultimate shareholder information; with

Samples and Data Source n The final samples include 4, 458 firm-year observations from

Cash dividend n n § To pay or not to pay cash dividend Div:

Accounting conservatism n n Givoly and Hayn (2000) proposed accrual based measure of conservative

Other measures n Conserv > 0, the accounting is conservative Conserv <0, the accounting

Table 1 Descriptive Statistics Variables N Mean SD 25% 50% 75% Div Payout Yield

Table 1 Descriptive Statistics(for SOEs) SOEs Variables Div Payout Yield (%) Cashdiv/Asset Conserv Cscore

Table 1 Descriptive Statistics(for Non-SOEs) NSOEs Variables Div Payout Yield (%) Cashdiv/Asset Conserv Cscore

Table 2 Spearman vs. Pearson Correlation Matrix Div Payout Yield Cashdiv/Asset Conserv Cscore MB

Table 3 Mean Comparison of Fundamentals between Aggressive Accounting and Conservative Accounting LEV Dum.

Table 4 Mean Comparison of Cash Dividend Policy between Aggressive Accounting and Conservative Accounting

Table 5 Mean Comparison of Conservatism for Firms with and without Cash Dividends Div

Table 6 Cash Dividend Payment and Accounting Conservatism Variables Age Pre. Div Conserv 0.

Table 6 Cash Dividend Payment and Accounting Conservatism (Continued) Variables Conserv Conserv CF 1.

Table 7 Accounting Conservatism, Cash Dividend Payment Level and Ownership Structure Variables Expsign Conserv

Table 7 Accounting Conservatism, Cash Dividend Payment Level and Ownership Structure(continued) Variables Expsign Div

Table 8 Cash Dividend Policy and Accounting Conservatism - SOEs and NSOEs Variables Conserv

Table 8 Cash Dividend Policy and Accounting Conservatism - SOEs and NSOEs(continued) SOE Variables

Table 9 Probit Model for Accounting Conservatism, Cash Dividend Overpayment, and Ownership Structure Variables

Table 9 Probit Model for Accounting Conservatism, Cash Dividend Overpayment, and Ownership Structure (continued)

Table 10 Other Conservatism Measures Payout Cscore Yield Over. Pay 4. 340 18. 428

Table 10 Other Conservatism Measures (continued) Variables Cscore M/B Payout Yield Over. Pay Over.

Table 11 Variables Conserv State 0. 021*** (3. 01) Endogenous Issue Div Conserv Payout

Table 11 Variables Conserv ROE -0. 001 (-8. 21)*** -2. 090 (-0. 94) Manown

Table 12 Endogenous Issue Variables Conserv State 0. 020 (2. 87)*** State Conserv Predividend

Table 12 Variables Endogenous Issue (continued) Conserv Age Size Growsq Inds Pseudo R 2

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Does Conservative Accounting Matter to Cash Dividend Policy William Bradford University of Washington, Seattle Chao Chen Fudan University Song Zhu Beijing Normal University

The story Chinese listed firms on average paid out just 22% of their earnings in 2001 -2006 period. Their average dividend yield was as lower as 0. 70% in the this period. The Chinese stock market is considered as an emerging market with weak shareholder protection due to low cash dividends. However, high dividend may affect the interest of bondholders.

The story Very few Chinese listed firms repurchased their stocks prior to 2008. Stock dividends are not unusual. No bond covenant restriction of paying dividend in our studying period. Earnings management is a wide spread phenomenon of Chinese listed firms. SOEs have less capital constraint relatively to NSOEs.

Motivation Without the restriction by corporate bond covenants of Chinese listed firms, does accounting conservatism influence corporate dividend policy? Can conservative accounting reduce dividends and thereby protect creditor claims and mitigate the creditor-shareholder agency conflict? SOEs adopt less conservative accounting than NSOEs, do they pay more cash dividends?

Main Findings n Conservative accounting reduces the payment and the probability of overpayment of cash dividends of listed firms in China, and thus mitigates the stockholdercreditor agency problem. n Even though the SOEs are more conservative than NSOEs due to political costs, lenders (mostly banks) are less concerned with downside risk for SOEs than for NSOEs, which will result in fewer restrictions on cash dividend payout. n Due to the less capital constraint, SOEs are more likely and pay more cash dividends than NSOEs.

Hypotheses § H 1: Ceteris paribus, firms with more conservative accounting are less likely to pay cash dividends to shareholders. § H 2: Ceteris paribus, firms with more conservative accounting tend to pay less cash dividends to shareholders.

Hypotheses § H 3: Ceteris paribus, firms with more conservative accounting are less likely to overpay cash dividends to shareholders. § H 4: The influence of conservative accounting on dividend policy is smaller for state-owned firms than for non state-owned firms.

Samples and Data Source n The new accounting standards became effective in China on January 1, 2007. n The corporate bond new issues were started in 2007. n The ownership reform to convert non-tradable shares to tradable shares was implemented for a small group of companies in 2005, then gradually expanded to most of the companies in 2007.

Samples and Data Source n Eliminate those sample firms without ultimate shareholder information; with missing financial data; listed less than one year; in the financial industry; and with negative earnings but paid dividend.

Samples and Data Source n The final samples include 4, 458 firm-year observations from 2001 to 2006. n Cash dividend policy data and other financial data are collected from the Wind/CSMAR database n The information about ultimate shareholders is collected manually from annual financial reports.

Cash dividend n n § To pay or not to pay cash dividend Div: Div=1, if the firm paid cash dividend, 0 otherwise. The degree of cash dividend Payout: cash dividend per share / current year EPS Yield: cash dividend per share / stock price per share at the beginning year Overpayment of cash dividend Over. Pay=1, if Payout > payout of the industry average Over. Yield =1, if Yield > yield of the industry average

Accounting conservatism n n Givoly and Hayn (2000) proposed accrual based measure of conservative accounting We follow the accrual measure used by Ahmend et al. (2002) and Ahmend and Duellamen (2007): Conserv= (Three-year cumulative accruals/year end total assets) * (-1), so the higher of this measure, the higher the accounting conservatism. Accruals of each year = earnings after extraordinary items + depreciation – cash flow from operation

Other measures n Conserv > 0, the accounting is conservative Conserv <0, the accounting is aggressive n Beatty et al. (2008) Khan and Watts (2009): Cscore n M/B: The total market value divided by book value of equity at the end of the year n

Table 1 Descriptive Statistics Variables N Mean SD 25% 50% 75% Div Payout Yield (%) Cashdiv/Asset Conserv Cscore 4458 4458 0. 439 0. 224 0. 699 0. 009 0. 013 0. 076 0. 496 0. 323 1. 217 0. 016 0. 189 0. 035 0 0 -0. 082 0. 051 1 0 0. 013 0. 078 1 0. 411 0. 983 0. 013 0. 109 0. 101 M/B 4458 3. 211 3. 073 1. 535 2. 315 3. 691 Grow CF ROE (%) Manown (%) Stockdiv Lev Age Size V CV State 4458 4458 4458 0. 249 0. 050 -0. 400 0. 029 0. 098 0. 500 7. 548 21. 212 0. 422 0. 847 0. 764 0. 675 0. 079 31. 591 0. 122 0. 298 0. 184 2. 724 0. 944 0. 163 0. 251 0. 424 -0. 019 0. 010 1. 315 0. 001 0 0. 373 5 20. 601 0. 289 0. 728 1 0. 138 0. 050 4. 940 0. 009 0 0. 510 7 21. 155 0. 407 1 1 0. 336 0. 093 8. 924 0. 027 0 0. 629 9 21. 813 0. 550 1 1

Table 1 Descriptive Statistics(for SOEs) SOEs Variables Div Payout Yield (%) Cashdiv/Asset Conserv Cscore M/B Grow CF ROE (%) Manown (%) Stockdiv Lev Age Size V CV N 3406 3406 3406 3406 3406 Mean 0. 475 0. 252 0. 791 0. 010 0. 013 0. 074 3. 033 0. 227 0. 054 0. 778 0. 027 0. 094 0. 485 7. 399 21. 303 0. 453 0. 905 SD 0. 499 0. 336 1. 288 0. 017 0. 181 0. 036 2. 723 0. 591 0. 077 27. 135 0. 106 0. 293 0. 183 2. 732 0. 935 0. 161 0. 206 25% 0 0 -0. 081 0. 049 1. 523 -0. 009 0. 014 1. 355 0. 001 0 0. 357 5 20. 682 0. 318 0. 999 50% 0 0 0. 012 0. 077 2. 288 0. 139 0. 054 5. 019 0. 009 0 0. 497 7 21. 241 0. 455 1 75% 1 0. 451 1. 126 0. 016 0. 104 0. 101 3. 550 0. 328 0. 096 8. 830 0. 027 0 0. 618 9 21. 879 0. 581 1

Table 1 Descriptive Statistics(for Non-SOEs) NSOEs Variables Div Payout Yield (%) Cashdiv/Asset Conserv Cscore M/B Grow CF ROE (%) Manown (%) Stockdiv Lev Age Size V CV N 1052 1052 1052 1052 1052 Mean 0. 320 0. 135 0. 404 0. 005 0. 013 0. 080 3. 785 0. 320 0. 036 -4. 219 0. 037 0. 112 0. 548 8. 031 20. 916 0. 320 0. 659 SD 0. 466 0. 258 0. 885 0. 011 0. 214 0. 033 3. 949 0. 892 0. 085 42. 751 0. 164 0. 315 0. 176 2. 641 0. 910 0. 126 0. 290 25% 0 0 -0. 087 0. 057 1. 590 -0. 064 -0. 004 1. 113 0 0 0. 428 6 20. 361 0. 242 0. 445 50% 0 0 0. 018 0. 082 2. 430 0. 131 0. 038 4. 660 0. 006 0 0. 556 8 20. 895 0. 290 0. 668 75% 1 0. 178 0. 398 0. 005 0. 125 0. 104 4. 373 0. 376 0. 081 9. 358 0. 026 0 0. 658 10 21. 545 0. 379 0. 960

Table 2 Spearman vs. Pearson Correlation Matrix Div Payout Yield Cashdiv/Asset Conserv Cscore MB 0. 947*** 0. 942*** -0. 132*** -0. 110*** -0. 123*** 0. 940*** 0. 947*** -0. 111*** -0. 150*** -0. 132*** 0. 958*** -0. 081*** -0. 077*** -0. 193*** -0. 115*** -0. 189*** -0. 084*** 0. 166*** 0. 031*** Payout 0. 784*** Yield 0. 650*** 0. 670*** Cashdiv/Asset 0. 640*** 0. 716*** 0. 773*** Conserv -0. 120*** -0. 072*** 0. 001 -0. 066*** Cscore -0. 106*** -0. 174*** 0. 005 -0. 237*** 0. 143*** MB -0. 094*** -0. 079*** -0. 084*** -0. 049*** 0. 075*** 0. 068*** 0. 107***

Table 3 Mean Comparison of Fundamentals between Aggressive Accounting and Conservative Accounting LEV Dum. Conserv N State 0 2067 1 2391 All SOE NSOE 0. 766 0. 452 0. 513 0. 761 0. 529 0. 514 0. 577 Diff 0. 005 -0. 063 -0. 062 -0. 064 t 0. 408 -11. 626*** -10. 068*** -5. 958***

Table 4 Mean Comparison of Cash Dividend Policy between Aggressive Accounting and Conservative Accounting N Div Payout Yield Cashdiv/Asset 0 2067 0. 488 0. 244 0. 694 0. 010 1 2391 0. 396 0. 207 0. 704 0. 008 Diff 0. 091 0. 037 -0. 009 0. 001 t 6. 174*** 3. 846*** -0. 255 3. 684*** Dum. Conserv

Table 5 Mean Comparison of Conservatism for Firms with and without Cash Dividends Div N Conserv Cscore M/B 0 2501 0. 033 0. 079 4. 597 1 1957 -0. 012 0. 071 2. 632 Diff 0. 046 0. 007 1. 964 t 8. 128*** 7. 166*** 6. 330***

Table 6 Cash Dividend Payment and Accounting Conservatism Variables Age Pre. Div Conserv 0. 005 (1. 27) -0. 063*** (-12. 19) Conserv 0. 007 (1. 44) Conserv 0. 007 (1. 56) Conserv 0. 006 (1. 42) Div Conserv 0. 006 (1. 46) Conserv 0. 007 (1. 48) Conserv 0. 007 (1. 58) -0. 051*** (-5. 78) Pre. Payout -0. 034*** (-3. 79) Payout -0. 032*** (-3. 79) Pre. Yield -0. 013*** (-4. 42) Yield -0. 006** (-2. 07) Pre. Cashdiv/Asset -1. 210*** (-6. 60) Cashdiv/Asset Size LEV Conserv 0. 007 (1. 50) -0. 013** (-2. 41) 0. 209*** (8. 95) -0. 021*** (-4. 07) 0. 237*** (9. 79) -0. 019*** (-3. 31) 0. 239*** (10. 58) -0. 020*** (-3. 73) 0. 215*** (9. 12) -0. 015*** (-2. 60) 0. 217*** (10. 02) -0. 022*** -0. 021*** (-4. 03) (-3. 57) 0. 237*** 0. 245*** (10. 02) (10. 40) -1. 075** (-6. 03) -0. 020*** (-3. 70) 0. 221*** (9. 58)

Table 6 Cash Dividend Payment and Accounting Conservatism (Continued) Variables Conserv Conserv CF 1. 222*** 1. 208*** 1. 220*** 1. 232*** 1. 239*** 1. 211*** 1. 214*** 1. 242*** (16. 36) -2. 952* (-1. 77) -0. 031 (-1. 22) 0. 000 (0. 01) 0. 014 (1. 62) (16. 21) -3. 341* (-1. 67) -0. 028 (-1. 05) -0. 001 (-0. 03) 0. 014* (1. 68) (16. 25) -3. 239* (-1. 66) -0. 026 (-0. 96) -0. 001 (-0. 04) 0. 014 (1. 56) (15. 93) -3. 005* (-1. 67) -0. 020 (-0. 74) -0. 000 (-0. 02) 0. 013 (1. 53) (16. 50) -2. 490 (-1. 29) -0. 030 (-1. 15) 0. 001 (0. 03) 0. 014* (1. 69) (16. 30) -3. 190 (-1. 60) -0. 029 (-1. 07) -0. 001 (-0. 05) 0. 014* (1. 70) (16. 58) -3. 406* (-1. 66) -0. 029 (-1. 11) -0. 002 (-0. 08) 0. 014 (1. 62) (16. 61) -2. 944 (-1. 57) -0. 020 (-0. 75) -0. 001 (-0. 06) 0. 014 (1. 60) -0. 051*** -0. 055*** -0. 057*** -0. 047*** -0. 054*** -0. 052*** (-5. 58) (-5. 36) (-5. 33) (-5. 43) (-4. 49) (-5. 38) (-5. 02) (-5. 24) Growsq 0. 012*** 0. 013*** 0. 014*** 0. 012*** 0. 013*** Inds Obs. Pseudo R 2 (6. 89) Control 4458 0. 310 (6. 93) Control 4458 0. 292 (6. 91) Control 4458 0. 298 (5. 83) Control 4458 0. 302 (6. 97) Control 4458 0. 291 (6. 54) Control 4458 0. 290 (6. 84) Control 4458 0. 295 Manown V CV State Grow

Table 7 Accounting Conservatism, Cash Dividend Payment Level and Ownership Structure Variables Expsign Conserv − State ＋ State Conserv ＋ Lev − Div Payout Yield Cashdiv/Asset -1. 036*** -1. 274*** -0. 272*** -0. 310*** -0. 722*** -0. 816*** -0. 013*** -0. 015*** (-2. 70) (-3. 20) (-10. 86) (-9. 24) (-15. 10) (-12. 35) (-16. 01) (-16. 83) 0. 089 (0. 95) 0. 011 (0. 09) 0. 051*** (2. 65) 0. 039** (2. 03) 0. 119** (2. 25) 0. 087* (1. 70) 0. 002** (2. 37) 0. 001* (1. 67) 0. 176 0. 028*** 0. 070*** 0. 001*** (1. 28) (3. 74) (3. 12) (3. 01) -3. 137*** -3. 166*** -0. 811*** -0. 816*** -2. 139*** -2. 152*** -0. 038*** -0. 039*** (-10. 76) (-10. 73) (-21. 62) (-22. 02) (-10. 89) (-18. 21) (-18. 95) (-19. 21) ? 0. 307 0. 058 0. 059* 0. 288*** 0. 291** 0. 008*** CV ? (1. 22) 0. 217 (0. 95) (1. 22) 0. 206 (0. 89) (1. 64) 0. 042* (1. 73) (1. 67) 0. 040* (1. 67) (3. 22) 0. 141* (1. 92) (2. 01) 0. 136* (1. 86) (4. 22) 0. 002 (1. 40) (4. 24) 0. 002 (1. 33) CF ＋ 4. 256*** 4. 174*** 0. 788*** 0. 774*** 3. 126*** 3. 088*** 0. 053*** (5. 13) (5. 22) (4. 97) (4. 92) (8. 72) (23. 99) (7. 56) (7. 58) V

Table 7 Accounting Conservatism, Cash Dividend Payment Level and Ownership Structure(continued) Variables Expsign Div ROE ＋ 0. 064*** 0. 065*** Manown Age Size ＋ ? ＋＋ Inds Pseudo R 2 ? 0. 013*** (3. 05) (26. 72) (26. 76) 0. 788** 0. 808** 0. 187*** 0. 190*** (2. 30) (2. 37) (5. 22) (5. 32) -0. 048* -0. 050* (-1. 71) (-1. 76) 0. 728*** 0. 727*** (12. 57) 1. 770*** (8. 51) Stockdiv 0. 013*** (3. 00) (12. 55) Predividend Payout (8. 47) 0. 665*** 0. 669*** -0. 019*** (-10. 86) (-10. 90) 0. 155*** (18. 70) (18. 69) 0. 547*** 0. 546*** (30. 28) (30. 29) 0. 033*** 0. 034*** Yield Cashdiv/Asset 0. 047*** 0. 001*** (28. 57) (28. 58) 0. 423*** 0. 431*** (3. 60) (3. 66) 0. 004 (0. 89) (0. 82) 0. 599*** 0. 598*** (19. 65) (19. 63) 0. 725*** (30. 94) (30. 93) 0. 146*** 0. 147*** (20. 08) (20. 12) 0. 008*** (2. 92) (2. 98) -0. 000*** (-5. 83) (-5. 91) 0. 007*** (17. 81) (17. 77) 0. 547*** 0. 548*** (9. 82) 0. 003*** (3. 45) (3. 50) (3. 04) (3. 09) (3. 93) (3. 98) (5. 01) (5. 07) Control Control 4458 4458 0. 3882 0. 3895 0. 2874 0. 2879 0. 2438 0. 2440 0. 5759

Table 8 Cash Dividend Policy and Accounting Conservatism - SOEs and NSOEs Variables Conserv Div -0. 535** -0. 247*** -0. 696** (-2. 39) Lev V CV (-31. 31) Cash/Asset -0. 910*** -0. 380*** -0. 818*** -0. 015*** Div (-2. 80) Payout (-3. 49) (-5. 07) -1. 335*** -0. 738*** -2. 015*** (-6. 47) -0. 033*** (-20. 37) (-16. 33) (-16. 83) (-3. 71) (-12. 02) (-3. 27) (-9. 94) 0. 012 0. 028 0. 161* 0. 007*** 0. 788** 0. 267** 1. 078*** 0. 013*** (0. 06) (0. 38) (1. 83) (3. 70) (2. 47) (2. 44) (5. 38) (2. 90) 0. 003** -0. 005 -0. 039 -0. 159** -0. 001 (1. 98) (-0. 02) (-1. 10) (-1. 98) (-0. 64) 0. 193 0. 087*** 0. 306*** (3. 00) (3. 01) 2. 509*** 0. 727*** 3. 063*** (3. 39) (4. 93) 0. 036*** 0. 014*** 0. 053*** (5. 06) Manown (-2. 48) -0. 012*** NSOE Yield (-10. 42) (5. 14) ROE (-3. 59) Cash/Asset -1. 929*** -0. 815*** -2. 136*** -0. 039*** (1. 41) CF Payout SOE Yield (20. 27) (20. 34) 0. 428*** 0. 174*** 0. 376*** (3. 80) (16. 23) (10. 72) 0. 052*** (5. 92) 0. 001*** 2. 732*** 0. 936*** 3. 079*** (12. 18) (4. 10) (4. 41) 0. 023*** 0. 010*** 0. 030*** 0. 051*** (5. 30) 0. 000*** (15. 44) (3. 77) (19. 23) (21. 61) (15. 85) 0. 008** (2. 16) 0. 485 (1. 41) 0. 170** (2. 04) 0. 420 (1. 58) 0. 006** (1. 99)

Table 8 Cash Dividend Policy and Accounting Conservatism - SOEs and NSOEs(continued) SOE Variables NSOE Div Payout Yield Cash/Asset -0. 027* -0. 018*** 0. 010* -0. 000*** -0. 040 -0. 021*** -0. 010*** -0. 001*** (-1. 77) (-8. 87) (1. 73) (-4. 44) (-1. 30) (-5. 85) (-4. 52) (-6. 15) 0. 417*** 0. 138*** 0. 568*** 0. 006*** 0. 414*** 0. 201*** 0. 659*** 0. 007*** (9. 84) (16. 73) (17. 21) (15. 18) (5. 84) (9. 88) (9. 24) (9. 48) 1. 067*** 0. 521*** 0. 709*** 0. 537*** 1. 061*** 0. 631*** 0. 758*** 0. 589*** (9. 60) (26. 53) (27. 07) (10. 15) (6. 86) (17. 75) (12. 34) (6. 77) 0. 308** 0. 009 0. 082** 0. 002*** 0. 581*** 0. 059** 0. 214*** 0. 004*** (2. 11) (0. 96) (2. 21) (3. 06) (3. 40) (1. 99) (3. 04) (3. 80) Inds Control Control Obs. 3406 1052 Pseudo R 2 0. 3856 0. 2705 0. 2395 0. 5244 0. 3902 0. 3378 0. 2557 0. 6847 Age Size Predividend Stockdiv

Table 9 Probit Model for Accounting Conservatism, Cash Dividend Overpayment, and Ownership Structure Variables Conserv Expsign − State ＋ State Conserv ＋ Lev − V ? CF + ROE + Manown + Over. Pay -0. 514*** -0. 585*** (-3. 44) (-3. 99) 0. 187*** 0. 163** (2. 66) (2. 03) 0. 052 (0. 86) -1. 884*** -1. 893*** (-10. 82) (-10. 81) 0. 093 0. 094 (0. 46) 0. 082 0. 079 (0. 87) (0. 84) 2. 157*** 2. 133*** (5. 61) (5. 59) 0. 027*** (7. 22) (7. 27) 0. 340* 0. 345* (1. 73) (1. 76) Over. Yield -0. 366** -0. 340** (-2. 39) (-2. 07) 0. 143** 0. 152*** (2. 23) (2. 76) 0. 019 (0. 22) -1. 882*** -1. 879*** (-8. 54) (-8. 24) 0. 017 (0. 10) 0. 123 0. 124 (0. 97) (0. 96) 2. 485*** 2. 495*** (13. 07) (12. 92) 0. 030*** (6. 05) (6. 08) 0. 066 0. 064 (0. 26) (0. 25)

Table 9 Probit Model for Accounting Conservatism, Cash Dividend Overpayment, and Ownership Structure (continued) Variables Expsign Age ? Over. Yield Over. Pay -0. 024** -0. 037*** (-2. 45) (-2. 51) (-4. 24) (-4. 26) 0. 450*** 0. 449*** 0. 488*** (12. 94) (12. 87) (12. 61) (12. 66) 1. 272*** 0. 540*** (11. 37) (11. 30) (15. 32) (15. 34) -0. 153 -0. 152 -0. 046 (-1. 45) (-0. 49) Inds control Obs. 4458 Pseudo R 2 0. 2943 0. 3539 0. 3540 Size Predividend Stockdiv + + ?

Table 10 Other Conservatism Measures Payout Cscore Yield Over. Pay 4. 340 18. 428 12. 218 6. 701 (1. 58) (1. 09) (0. 77) (0. 49) (-3. 65) 0. 097*** (3. 43) -0. 639 (-1. 05) 0. 098 (0. 99) 0. 184 (0. 07) 0. 186 (1. 07) -0. 066 (-0. 03) 0. 084 (0. 55) 0. 752 (0. 45) 0. 056*** (2. 76) -0. 002 (-0. 38) -1. 532*** -5. 536*** -4. 112 -3. 230 -0. 804*** -2. 060*** (-3. 78) 0. 062* (1. 72) 0. 045* (1. 89) (-7. 37) 0. 294 (0. 66) 0. 141* (1. 93) (-1. 50) 0. 100 (0. 47) 0. 082 (0. 89) (-1. 47) 0. 025 (0. 14) 0. 118 (0. 95) (-21. 53) 0. 078** (2. 26) 0. 045* (1. 88) 0. 430*** 2. 155*** 1. 490*** 2. 007*** (5. 10) (20. 15) (4. 84) ROE 0. 013*** 0. 048*** Manown (26. 29) 0. 191*** (5. 01) (27. 53) 0. 440*** (3. 60) Variables Conserv State Conserv Lev V CV CF Over. Yield Payout M/B Yield Over. Pay -0. 018*** -0. 071*** Over. Yield -0. 033* -0. 122*** (-2. 75) (-1. 76) (-2. 76) 0. 178*** (3. 15) -0. 021 (-1. 40) 0. 197** (2. 20) -0. 004 (-0. 18) 0. 054 (0. 38) 0. 037 (1. 00) -1. 872*** -1. 779*** (-8. 56) 0. 373*** (4. 52) 0. 160** (2. 18) (-11. 94) 0. 129 (0. 62) 0. 093 (0. 94) (-9. 53) 0. 093 (0. 54) 0. 159 (1. 21) 0. 394*** 2. 029*** 1. 415*** 1. 938*** (13. 68) (3. 58) (6. 26) (4. 85) (18. 63) 0. 028*** 0. 030*** 0. 016*** 0. 060*** 0. 033*** 0. 041*** (7. 07) 0. 349* (1. 76) (6. 08) 0. 080 (0. 32) (36. 58) 0. 186*** (5. 07) (40. 29) 0. 410*** (3. 48) (6. 59) 0. 333* (1. 68) (5. 03) 0. 036 (0. 14)

Table 10 Other Conservatism Measures (continued) Variables Cscore M/B Payout Yield Over. Pay Over. Yield -0. 021*** -0. 002 -0. 029** -0. 040*** -0. 023*** -0. 011** -0. 033** -0. 051*** (-12. 90) (-0. 48) (-2. 45) (-4. 57) (-13. 41) (-2. 22) (-2. 56) (-5. 27) 0. 103*** 0. 336*** 0. 280 0. 385* 0. 131*** 0. 497*** 0. 404*** 0. 396*** (2. 88) (4. 49) (1. 16) (1. 90) (16. 48) (17. 14) (9. 24) 0. 550*** 0. 731*** 1. 282*** 0. 544*** 0. 548*** 0. 714*** 1. 280*** 0. 531*** (18. 65) (31. 39) (11. 30) (15. 56) (30. 61) (31. 90) (11. 17) (13. 33) 0. 043*** 0. 170*** -0. 133 -0. 033 0. 041*** 0. 164*** -0. 135 -0. 031 (3. 86) (4. 56) (-1. 24) (-0. 35) (3. 76) (4. 49) (-1. 28) (-0. 33) Inds Control Control Obs. Pseudo R 2 4458 0. 2869 4458 0. 2434 4458 0. 2932 4458 0. 2919 4458 0. 2472 4458 0. 2966 4458 0. 3636 Age Size Predividend Stockdiv

Table 11 Variables Conserv State 0. 021*** (3. 01) Endogenous Issue Div Conserv Payout Conserv Yield Conserv Cashdiv/Asset -1. 380*** -0. 516*** -1. 806*** -0. 019*** (-7. 53) (-4. 35) (-4. 62) (-3. 71) -0. 041 (-1. 63) 0. 020*** (2. 96) -0. 003 (-0. 19) 0. 020*** (2. 85) -0. 064 (-1. 14) 0. 019*** (2. 83) -0. 001 (-0. 77) State* Conserv 0. 124*** 0. 045* 0. 166** 0. 002* Predividend (3. 20) 0. 351 (1. 77) 0. 314 0. 002 (1. 95) 0. 611 -0. 589 (1. 67) 0. 473 (0. 70) (38. 42)*** (-3. 37)*** (37. 34)*** 0. 153 -0. 157 0. 133 -0. 010 (9. 27)*** (-1. 56) (7. 75)*** (-7. 73)*** -0. 058 0. 292 -0. 049 0. 006 (-2. 64)** (5. 13)*** -0. 051 (-8. 44)*** (21. 50)*** Lev 0. 120 -0. 167 (7. 24)*** (-3. 77)*** V CV CF -0. 017 (-1. 99)** (22. 97)*** 0. 143 -0. 234 (8. 60)*** (-7. 64)*** -0. 049 0. 028 -0. 056 0. 060 (-2. 69)*** (0. 65) (-3. 02)*** (2. 06)** (-3. 11)*** (3. 04)*** 0. 027 (1. 52) 0. 588 (5. 22)*** 0. 050 (0. 83) 2. 391 (6. 39)*** 0. 032 (1. 21) 1. 377 (7. 88)*** 0. 001 (0. 34) 0. 039 (7. 79)***

Table 11 Variables Conserv ROE -0. 001 (-8. 21)*** -2. 090 (-0. 94) Manown Age Size 0. 005 (1. 56) Stockdiv Growsq Inds Pseudo R 2 Div 14. 177 (2. 76)*** -0. 001 (-0. 53) 0. 080 (10. 34)*** 0. 123 (5. 80)*** Endogenous Issue (continued) Conserv -0. 001 (-9. 16)*** -2. 430 (-1. 08) -0. 002 (-0. 80) Payout 9. 120 (2. 64)** -0. 002 (-1. 47) 0. 042 (7. 99)*** -0. 036 (-2. 45)** Conserv -0. 001 (-9. 23)*** -2. 666 (-1. 19) -0. 004 (-1. 30) Yield 8. 569 (0. 75) 0. 041 (7. 57)*** 0. 201 (11. 15)*** -0. 065 (-1. 35) Conserv -0. 001 (-9. 16)*** -2. 303 (-1. 03) -0. 002 (-0. 53) -0. 015 (-1. 95)** 0. 006 -0. 009 (-1. 07) 0. 006 -0. 013 (-1. 67)* 0. 007 -0. 010 (-1. 77)* 0. 006 (3. 29)*** (2. 93)*** (3. 28)*** (2. 99)*** Control Cashdiv/Asset 0. 323 (2. 11)** 0. 0002 (2. 27)** 0. 001 (6. 46)*** -0. 0003 (-0. 45) 4458 4458 0. 0918 0. 2542 0. 0785 0. 2322 0. 0775 0. 4076 0. 0801 0. 4352

Table 12 Endogenous Issue Variables Conserv State 0. 020 (2. 87)*** State Conserv Predividend Lev V -0. 017 (-2. 04)** 0. 146 (8. 76)*** -0. 055 (-2. 96)*** CV CF ROE Manown -0. 001 (-9. 10)*** -2. 386712 (-1. 06) Over. Pay -1. 120 (-6. 25)*** -0. 006 (-0. 23) 0. 085 (2. 20)** 0. 426 (20. 64)*** -0. 242 (-5. 23)*** 0. 030 (0. 69) 0. 025 (0. 95) 1. 185 (6. 98)*** 10. 30222 (1. 97)** Conserv 0. 019 (2. 79)*** 0. 002 (0. 59) 0. 156 (9. 44)*** -0. 063 (-3. 39)*** -0. 001 (-8. 97)*** -2. 483 (-1. 11) Over. Yield -1. 127 (-6. 54)*** -0. 014 (-0. 56) 0. 082 (2. 20)** 0. 169 (24. 12)*** -0. 175 (-3. 93)*** -0. 027 (-0. 65) 0. 021 (0. 82) 1. 157 (7. 04)*** 1. 805 (0. 36)

Table 12 Variables Endogenous Issue (continued) Conserv Age Size Growsq Inds Pseudo R 2 Conserv Over. Yield 0. 0000695 -0. 001 (0. 03) (-0. 67) -0. 0026829 0. 0982627 -0. 004 0. 079 (-0. 85) (12. 28)*** (-1. 48) (10. 02)*** Stockdiv Grow Over. Pay -0. 0385179 -0. 003 (-1. 74)* (-0. 18) -0. 0121517 -0. 016 (-1. 46) (-2. 00)** 0. 006721 0. 007 (3. 23)*** (3. 74)*** Control 4458 0. 0784 0. 1950 0. 0770 0. 2165