The implications of financial conservatism for African firms

Chimwemwe Chipeta*, Nadeem Aftab, Michael Machokoto

*Corresponding author for this work

Research output: Contribution to JournalArticlepeer-review


Using a large sample of African firms over the period 1982—2015, we find that firms forced into financial conservatism due to financial constraints have lower stock market valuation and profitability relative to their unconstrained counterparts who choose conservatism (optional financial conservatism) for motives linked to financial flexibility. Our further analyses, however, show a decrease in investments and employment with financial conservatism in the long-run. This finding highlights a significant trade-off with the desire to attain or enhance financial flexibility. Overall, our study confirms the benefits of optional financial conservatism and detriments of forced financial conservatism in developing markets where access to finance is limited.
Original languageEnglish
Article number101926
Pages (from-to)1-19
Number of pages19
JournalFinance Research Letters
Early online date8 Jan 2021
Publication statusPublished - 1 Oct 2021


  • Capital structure
  • Developing markets
  • Financial conservatism
  • Financial constraints
  • Zero-debt


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