Review of Accounting Studies

, Volume 14, Issue 1, pp 88–122 | Cite as

Publicly traded versus privately held: implications for conditional conservatism in bank accounting

  • D. Craig Nichols
  • James M. Wahlen
  • Matthew M. Wieland


Compared with privately held banks, publicly traded banks face greater agency costs because of greater separation of ownership and control but enjoy greater benefits from access to the equity capital market. Differences in control and capital market access influence public versus private banks’ accounting. We predict and find that public banks exhibit greater degrees of conditional conservatism (asymmetric timeliness of the recognition of losses versus gains in accounting income) than private banks. We predict and find that public banks recognize more timely earnings declines, less timely earnings increases, and larger and more timely loan losses. Although public ownership gives managers greater ability and incentive to exercise income-increasing accounting, our findings show that the demand for conservatism dominates within public banks and that the demand for conservatism is greater among public banks than private banks. Our results provide insights for accounting and finance academics, bank managers, auditors, and regulators concerning the effects of ownership structure on conditional conservatism in banks’ financial reporting.


Conservatism  Private and public banks Agency costs Control Asymmetric timeliness 

JEL Classification

 G1 G21 G32 M41 



We gratefully acknowledge helpful comments from S. Ryan, D. Skinner, G. Udell, two anonymous referees, and workshop participants at the 2005 Burton Workshop at the Columbia Business School, the London Business School, the University of Arkansas, Brigham Young University, Florida State University, the University of Iowa, the University of Oregon, and the University of Texas at Austin. We also gratefully acknowledge SNL Financial for providing data.


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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  • D. Craig Nichols
    • 1
  • James M. Wahlen
    • 2
  • Matthew M. Wieland
    • 3
  1. 1.Johnson Graduate School of ManagementCornell UniversityIthacaUSA
  2. 2.Kelley School of BusinessIndiana UniversityBloomingtonUSA
  3. 3.J. M. Tull School of Accounting, Terry College of BusinessUniversity of GeorgiaAthensUSA

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