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Value relevance of conservative and non-conservative accounting information

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  • Kousenidis, Dimitrios V.
  • Ladas, Anestis C.
  • Negakis, Christos I.

Abstract

The present paper examines effects of reporting conservatism on the value relevance of accounting earnings of a sample of Greek firms over the period from 1989 to 2003. The results of the paper indicate that conservatism is a salient feature of the Greek Accounting System. Moreover, the results depict that the level of conservatism has increased after the market crisis of 1999, potentially as a result of the additional regulation, imposed by the market authorities during the post-crisis period. Finally, the results show that there is a non-linear association between conservative reporting and value relevance of earnings. In particular, value relevance increases when moving from low-conservative firms to medium-conservative firms and decreases when moving further to high-conservative firms. Overall, the results of the paper lend empirical support to the theoretical underpinnings of Watts (2003a) who, on the one hand, report a number of arguments in favor of conservatism but, on the other hand, questions the practice of excessive conservative reporting as being a potential cause of the distortion of the earnings-returns relation.

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  • Kousenidis, Dimitrios V. & Ladas, Anestis C. & Negakis, Christos I., 2009. "Value relevance of conservative and non-conservative accounting information," The International Journal of Accounting, Elsevier, vol. 44(3), pages 219-238, September.
    • Handle: RePEc:eee:accoun:v:44:y:2009:i:3:p:219-238
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    Cited by:

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    3. Samara, Angeliki D., 2014. "Assessing the relevance of deferred tax items: Evidence from loss firms during the financial crisis," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 138-145.
    4. Carmen- Alexandra BALTARIU, 2015. "The Current State Of Knowledge In The Value Relevance Research Field," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 7, pages 13-20, April.
    5. Lavinia Minodora Takacs, 2012. "The Value Relevance Of Earnings In A Transition Economy: Evidence From Romanian Stock Market," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(14), pages 1-8.
    6. Manganaris, Panayotis & Spathis, Charalambos & Dasilas, Apostolos, 2015. "The effects of mandatory IFRS adoption and conditional conservatism on European bank values," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 24(C), pages 72-81.
    7. Panayotis Manganaris & Jordan Floropoulos & Irini Smaragdi, 2011. "Conservatism and Value Relevance: Evidence from the European Financial Sector," American Journal of Economics and Business Administration, Science Publications, vol. 3(2), pages 259-269, April.
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