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Revisiting conditional accounting conservatism in state-controlled firms

Author

Listed:
  • Wilson Li
  • Tina He
  • Andrew Marshall
  • Gordon Tang

Abstract

Purpose - The purpose of this paper is to explore the demand for conditional accounting conservatism from equity shareholders in state-controlled firms. Design/methodology/approach - This study presents empirical investigation of firms listed on Hong Kong Stock Exchange from 1997 to 2013. Findings - The first finding is the extent of conditional conservatism in state-controlled firms increases when the leverage ratio decreases. It is also found that the high control rights held by the government in state-controlled firms are associated with high conditional conservatism. In addition, further analyses document the an offsetting effect between high control rights and firm leverage; a reinforcing effect between high control rights and year of incorporation after 1992; and a substituting effect between high control rights and dividend payments. Originality/value - These findings suggest that the demand from equity shareholders, in addition to the debt demand, can be an important determinant of conditional conservatism and examination of these differing sources of demand can enhance the understanding on accounting conservatism in state-controlled firms.

Suggested Citation

  • Wilson Li & Tina He & Andrew Marshall & Gordon Tang, 2017. "Revisiting conditional accounting conservatism in state-controlled firms," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 25(4), pages 486-501, December.
    • Handle: RePEc:eme:arapps:ara-07-2016-0077
    DOI: 10.1108/ARA-07-2016-0077
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    More about this item

    Keywords

    Leverage; Conditional accounting conservatism; Equity demand; High control; State-controlled firms; G30; G32; M41;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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