Drawing on regulatory focus theory, this study aims to examine how top management teams' (TMTs) motivational orientations (promotion versus prevention focus) influence accounting conservatism and further explores the internal and external situational conditions that shape this relationship.
Using textual analysis to quantify TMT regulatory focus from management discussion and analysis (MD&A) across Chinese A-listed firms, this study applies multivariate regression analysis to assess the impact of regulatory focus on accounting conservatism.
Our results show that promotion-focused TMTs are more likely to diminish accounting conservatism, whereas prevention-focused TMTs enhance it. TMT restricted stock (internal situational factor) attenuates both the negative effect of promotion focus and the positive effect of prevention focus on accounting conservatism. Analyst coverage (external situational factor) weakens the negative effect of promotion focus on conservatism while amplifying the positive effect of prevention focus. Further subgroup analyses reveal that the effects of TMT regulatory focus are more pronounced in non-SOEs and firms with lower ownership concentration and are significantly moderated by auditor industry expertise and product-market competition, highlighting the role of internal governance and external market factors as important boundary conditions.
This study introduces TMT regulatory focus as a novel psychological determinant of accounting conservatism, shifting the literature beyond observable demographic proxies to the motivational drivers of managerial reporting behavior. Furthermore, it identifies two actionable governance levers that interact with TMT motivational orientations, offering a more nuanced framework for corporate governance and compensation design.
