Accounting conservatism and SEO announcement returns: the role of culture and institutions

Purpose This study aims to examine the influence of culture and institutions on the relationship between accounting conservatism and seasoned equity offering (SEO) announcement returns. It aims to assess whether a composite measure of accounting value of conservatism (AVC) and the Rule of Law Index moderate this relationship in an international context. Design/methodology/approach Using a sample of SEOs issued in 35 countries from 2002 to 2021, the authors investigate how culture and institutional factors interact with accounting conservatism. The authors focus on the moderating effect of AVC and the Rule of Law Index on the association between conservatism and market reactions to SEO announcements. Findings The authors find that AVC explains part of the variability in the association between accounting conservatism and SEO announcement returns. The positive effect of conservatism on market reaction found in the USA is not generalizable to other countries. Moreover, both conditional and unconditional conservatism are positively associated with SEO announcement returns in countries with high AVC. Practical implications These results emphasize the role of cultural values in shaping how investors perceive conservative accounting, which can inform managers and policymakers in tailoring financial communication strategies to cultural contexts. Originality/value This study contributes to SEO costs and accounting conservatism by showing that the relationship between conservatism and SEO announcement returns varies internationally, driven in part by cultural preferences for conservatism.