Financial Conservatism: Excessive Prudence or Smart Anticipation?

24 Pages Posted: 12 Feb 2018

See all articles by Myriam Hernandez Robles

Myriam Hernandez Robles

Technical University of Cartagena (UPCT) - Department of Accounting and Finance

Javier Sánchez Vidal

Universidad Politecnica de Cartagena - Department of Economics, Accounting and Finance

Date Written: February 8, 2018

Abstract

This article aims to analyze the phenomenon of financial conservatism in firms’ capital structures and relate it to their employment variation for a sample of Spanish companies during the 2008-2013 period. Financial conservatism is described as following a low-leverage/high cash no-short-term capital structure policy. We use Jovanovic’s model (1982) that relates growth, age, and size, to which we add a dummy indicating financial conservatism. As the growth of a company is measured as its number of employees’ variation, we are ultimately analyzing how financial conservatism affects job creation. Evidence shows that a financially conservative policy at a given company is a positive factor for job creation.

Keywords: financial conservatism, capital structure, growth, labor demand

JEL Classification: G32, J23, O16

Suggested Citation

Hernandez Robles, Myriam and Sánchez Vidal, Javier, Financial Conservatism: Excessive Prudence or Smart Anticipation? (February 8, 2018). Available at SSRN: https://ssrn.com/abstract=3120727 or http://dx.doi.org/10.2139/ssrn.3120727

Myriam Hernandez Robles (Contact Author)

Technical University of Cartagena (UPCT) - Department of Accounting and Finance ( email )

Spain

Javier Sánchez Vidal

Universidad Politecnica de Cartagena - Department of Economics, Accounting and Finance ( email )

Calle Real, 3
Cartagena, 30201
Spain

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