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The effect of differential accounting conservatism on the “over-valuation” of high-tech firms relative to low-tech firms

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  • Sung Kwon
  • Qin Yin
  • Jongsoo Han

Abstract

This paper examines systematic differences in the level of accounting conservatism between high-tech and low-tech firms. Relying on the recent development in theoretical models and empirical measures of conservatism, we investigate conservative accounting practices and earnings management behavior in high-tech and low-tech firms. The results based on comparisons of cumulative nonoperating accruals, regression coefficients from the income timeliness models in Basu (1997), the distribution of earnings, and discretionary accruals between the two groups are consistent with a higher level of accounting conservatism in high-tech firms vis-à-vis low-tech firms. Additional analyses show that the effect of conservatism cannot be used as a defense for the over-valuation of high-tech firms. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Sung Kwon & Qin Yin & Jongsoo Han, 2006. "The effect of differential accounting conservatism on the “over-valuation” of high-tech firms relative to low-tech firms," Review of Quantitative Finance and Accounting, Springer, vol. 27(2), pages 143-173, September.
    • Handle: RePEc:kap:rqfnac:v:27:y:2006:i:2:p:143-173
    DOI: 10.1007/s11156-006-8794-3
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    2. Lin, Fengyi & Wu, Chung-Min & Fang, Tzu-Yi & Wun, Jheng-Ci, 2014. "The relations among accounting conservatism, institutional investors and earnings manipulation," Economic Modelling, Elsevier, vol. 37(C), pages 164-174.
    3. Qing L. Burke & Tim V. Eaton & Mengying Wang, 2019. "Trade liberalization and conditional accounting conservatism: evidence from import competition," Review of Quantitative Finance and Accounting, Springer, vol. 53(3), pages 811-844, October.
    4. Houcine, Asma, 2017. "The effect of financial reporting quality on corporate investment efficiency: Evidence from the Tunisian stock market," Research in International Business and Finance, Elsevier, vol. 42(C), pages 321-337.
    5. Mitchell Oler, 2015. "Determinants of the length of time a firm’s book-to-market ratio is greater than one," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 509-539, October.

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