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The article discusses a study which examined the role of accounting conservatism in mitigating the agency problem between managers and shareholders by analyzing the association between conservatism and dividend payouts. Several proxies for accounting conservatism were used, including nonoperating accruals, conservatism measures and differential earnings skewness. The analysis shows implications for literature on the determinants of corporate payouts and the literature on the benefits of accounting conservatism. A basic regression model is used to capture the effect of accounting conservatism on corporate payout.

The article refers to accounting research and considers the idea that conservatism in corporate accounting can reduce the value destruction associated with cash holdings. The discussion focuses on the reduction of incentives to take on negative net present value (NPV) projects, the role of accounting practices in mitgating agency costs, and the direct benefit to shareholders that accounting conservatism provides. The article concludes that accounting conservatism increases the value of a corporation's cash holdings and it also increases the efficient use of cash holdings.