Are offshore firms less conservative in financial reporting? International evidence

Using a large sample of multinational firms operating in offshore financial centers (offshore firms) from 1998 to 2014, this study investigates the financial reporting implications of economic activities involving offshore financial centers ( OFC s). We find that offshore firms have a greater tendency to report less conservatively than non‐offshore firms. Moreover, we find that financial reporting is less conservative for firms operating in OFC s with more pronounced OFC attributes than for those with less pronounced OFC attributes. Finally, we also find that firms with their headquarters registered in OFC s (type I offshore firms) tend to adopt less conservative accounting practices than those with subsidiaries operating in OFC s (type II offshore firms). Our findings provide useful insights into how a multinational firm's operation in OFC s is associated with financial reporting practices.