The Intersection of Opportunity and Caution: Understanding How Company Size Moderates the Relationship between Growth Opportunities and Accounting Conservatism

Abstract

This study examines the relationship between growth opportunities and accounting conservatism, with a specific focus on the moderating role of company size. Using panel data regression on 296 firm-year observations, the analysis reveals a significant negative relationship between growth opportunities and accounting conservatism, suggesting that firms with higher growth prospects tend to apply less conservative accounting practices. Furthermore, the findings show that company size significantly moderates this relationship; larger firms are more likely to maintain accounting conservatism even when facing strong growth potential. These results are interpreted through the lens of Agency Theory and Positive Accounting Theory (PAT). From an agency perspective, reduced conservatism in high-growth firms is linked to managerial opportunism and increased information asymmetry, whereas larger firms face stronger monitoring and regulatory pressures, encouraging more conservative reporting. From the PAT perspective, smaller firms may behave opportunistically under bonus or debt covenant incentives, while larger firms adopt conservative policies to avoid political costs. The findings offer important implications for policymakers, auditors, and investors in evaluating financial reporting quality across different firm profiles.