This study examines the relationship between corporate diversification and conservative financial reporting. The findings reveal a positive association between diversification and accounting conservatism, suggesting that diversification increases the demand for conservative reporting. Notably, this relationship is stronger for firms with unrelated diversification compared to those with related diversification. Further analysis indicates that low levels of institutional ownership drive this association, with no significant difference between low domestic and low foreign institutional ownership. These results highlight the critical role of conservative reporting in addressing the information asymmetry challenges inherent in diversified firms.
Mark Nyamekye Atta (Sun,) studied this question.