Review of Quantitative Finance and Accounting

, Volume 53, Issue 3, pp 811–844 | Cite as

Trade liberalization and conditional accounting conservatism: evidence from import competition

  • Qing L. BurkeEmail author
  • Tim V. Eaton
  • Mengying Wang
Original Research


This study examines the impact of import competition, an underexplored but integral component of trade liberalization, on conditional accounting conservatism. Existing literature offers conflicting arguments on the effect of import competition on conditional conservatism. Import competition may reduce the need for conditional conservatism through the disciplining role of competition in corporate governance. Conversely, faced with heightened import competition, firms may have greater business uncertainty and become more susceptible to agency costs, thus generating a higher demand for conditional conservatism from shareholders and creditors. Using a sample of manufacturing firm-years from 1977 to 2012, we find that firm-level import competition is significantly and positively associated with conditional conservatism. Moreover, we establish the causal effect of import competition on conditional conservatism by estimating instrumental variable regressions and employing a difference-in-differences specification of large tariff reductions. Our results are robust when further controlling for other proxies of product market competition. These findings contribute to the literature on competition and enhance our understanding of the impact of trade liberalization on financial reporting.


Trade liberalization Import penetration Competition Conditional conservatism 

JEL Classification

G10 L1 M41 



We thank Dmitri Byzalov, Po-Chang Chen, Charles Moul, John Nofsinger, Chi Wan, Matt Wieland, and the participants at the 2017 AAA annual meeting for their helpful comments. The authors gratefully acknowledge the financial support of the Farmer School of Business at Miami University and the College of Management at the University of Massachusetts, Boston.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Miami UniversityOxfordUSA
  2. 2.University of Massachusetts BostonBostonUSA

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