This study explores the governance role of accounting conservatism by investigating changes in financial reporting conservatism before and after the passage of state anti-takeover laws. The passage of these anti-takeover laws introduced an exogenous shock to the takeover threat faced by firms...

In frictionless capital markets with complete information and rational investors, stock prices adjust to new information instantaneously and completely. However, a substantial body of research studies information imperfections such as asymmetric information and incomplete information....

We test the hypotheses that (i) poor accounting quality is associated with delayed stock price adjustment to information, and (ii) the accounting quality component of price delay predicts stock returns. We define accounting quality as the precision with which financial reporting informs equity...