Culture shaped conditional accounting conservatism: evidence from US public firms

Purpose This study aims to examine whether corporate culture influences firms’ financial reporting behavior through its impact on conditional accounting conservatism. While prior literature primarily attributes conservatism to external institutional factors, contracting incentives, litigation risk and regulatory pressures, this study investigates whether firm-level cultural values act as internal determinants shaping the timely recognition of economic losses. Design/methodology/approach Using a large panel of US publicly listed firms, the analysis combines machine-learning–based measures of corporate culture developed by Li et al. (2021) with the firm-year C-score framework of Khan and Watts (2009), grounded in the asymmetric timeliness model of Basu (1997). The design evaluates how five cultural dimensions: innovation, integrity, quality, respect and teamwork affect conditional conservatism. Findings Corporate culture significantly influences the timely recognition of economic losses. Cultures emphasizing integrity, quality, respect and teamwork are positively associated with conditional conservatism, suggesting ethical and collaborative environments strengthen internal governance and promote transparent reporting. Conversely, innovation-oriented cultures are negatively associated with conservatism, consistent with greater emphasis on experimentation and risk-taking. Subsample analyses indicate these effects are stronger where cultural values are deeply embedded, and a culture-augmented asymmetric timeliness model confirms that culture enhances earnings’ responsiveness to bad news relative to good news. Originality/value The study links corporate culture to conditional conservatism, identifying culture as an internal governance mechanism in financial reporting. By integrating machine-learning–based cultural measures with established conservatism frameworks, it bridges organizational culture research with traditional accounting models and captures within-country heterogeneity overlooked by national-culture studies.