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This study examines the change of the agency-based demand for accounting conservatism surrounding share repurchases for a sample of US listed firms between 2003 and 2013. We find that the extent of accounting conservatism of repurchasing firms decreases significantly post share repurchase, supporting our contention that share repurchases reduce excess cash and consequently the agency-based demand for conservative accounting. This result holds for firms undervalued by the market (financially unconstrained firms and firms with low or no financial distress risk), but there is no significant decrease in accounting conservatism for firms overvalued by the managers (financially constrained firms or for firms with high financial distress risk). This supports the view that share repurchases of undervalued firms decreases information asymmetry and therefore reduces the agency-based demand for accounting conservatism from investors. However when firms are overvalued by managers, repurchasing shares cannot reduce the agency-based demand for accounting conservatism as investors continue to have concerns about managers overconfidence and reject the undervaluation signal of the share repurchase.

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Purpose The purpose of this paper is to explore the demand for conditional accounting conservatism from equity shareholders in state-controlled firms. Design/methodology/approach This study presents empirical investigation of firms listed on Hong Kong Stock Exchange from 1997 to 2013. Findings The first finding is the extent of conditional conservatism in state-controlled firms increases when the leverage ratio decreases. It is also found that the high control rights held by the government in state-controlled firms are associated with high conditional conservatism. In addition, further analyses document the an offsetting effect between high control rights and firm leverage; a reinforcing effect between high control rights and year of incorporation after 1992; and a substituting effect between high control rights and dividend payments. Originality/value These findings suggest that the demand from equity shareholders, in addition to the debt demand, can be an important determinant of conditional conservatism and examination of these differing sources of demand can enhance the understanding on accounting conservatism in state-controlled firms.

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