Value relevance of conservative and non-conservative accounting information
AbstractThe 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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Bibliographic InfoArticle provided by Elsevier in its journal The International Journal of Accounting.
Volume (Year): 44 (2009)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/620179
Conditional conservatism Value relevance of accounting earnings Cross-sectional dependence;
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