Note(s): This table reports OLS estimates of the bankruptcy equation without correction for self-selection bias. Dependent variable: C-score is the firm-year measure of conservatism as in Khan and Watts (2009). Independent variables: Lev is a dummy variable that takes one if leverage is above the median, and zero otherwise; leverage is defined as total debt (Compustat #9 + Compustat #34) scaled by total assets (Compustat #6); LitiCost-Aud is a binary variable that equals one if the code of a firm’s auditor (Compustat #149) is from one to eight, and zero otherwise; Tax is a dummy variable that takes one if TaxCost is above the median, and zero otherwise. TaxCost is the association between book income and tax income estimated from time-series regression TX_jt = β_0j + β _jt BKTX_jt + ε_jt for firm j over the sample period, where BKTX _jt is tax expense for firm j in year t (Compustat #16) and TX _jt is tax expense minus deferred tax expense (Compustat #16 – Compustat #50); all variables are deflated by lagged total assets (Compustat #6). Selectivity variable (Mills ratio as defined in Shehata (1991) and Lourenço et al. (2013)). ***p < 0.01, **p < 0.05, *p < 0.1