ACCOUNTING CONSERVATISM AND SUSTAINABILITY REPORTING IN CHANGING TIMES: EVIDENCE FROM TURKISH BANKING INDUSTRY

Abstract

The study aims to examine accounting conservatism in the Turkish banking sector from two sides. These canbe expressed as lending policies and sustainability reporting. We firstly investigate whether accountingconservatism improves the lending capacity of banks during crisis periods. We hypothesize that higher conditionalconservatism could reduce the adverse effect of the financial crises on the banks' lending capacity. We test ourpredictions empirically through an unbalanced panel data of 32 Turkish deposit banks in 1999-2019. We secondlyexamine whether a bank’s engagement in sustainability performance and reporting reduces information asymmetryand leads to less demand for conservatism by outside stakeholders. We test whether a bank conditionalconservatism changes or not after starting to report sustainability information. The results of our primaryhypotheses are consistent with our predictions and complement and support existing evidence in the empiricalliterature. We find evidence of the positive impact of conditionally conservative accounting policies on the supplyof bank loans. When we test our sustainability reporting hypotheses, incoherent with prior researches and ourpredictions, there is no significant relationship between sustainability reporting and the level of conservatism.