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Understanding discretion in conservatism: An alternative viewpoint

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  • Roychowdhury, Sugata
  • Martin, Xiumin

Abstract

Various studies have investigated variation in reporting conservatism with pre-specified contractual incentives. Lawrence et al. (forthcoming), hereafter LSS, propose a model to control for “normal” or “non-discretionary” conservatism while testing for variation in conservatism with contractual forces, which they characterize as “discretionary” variation. Our objective is to further the discussion on discretion in conservatism by relying on LSS and incorporating insights from related studies to shed light on the rationales and relative importance of various controls for normal conservatism suggested by LSS. Furthermore, our perspective on discretion in conservatism is distinct from the one developed by LSS in some crucial respects, ultimately leading us to question the nature of the boundary between discretionary and non-discretionary conservatism.

Suggested Citation

  • Roychowdhury, Sugata & Martin, Xiumin, 2013. "Understanding discretion in conservatism: An alternative viewpoint," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 134-146.
    • Handle: RePEc:eee:jaecon:v:56:y:2013:i:2:p:134-146
    DOI: 10.1016/j.jacceco.2013.11.001
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    References listed on IDEAS

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    Cited by:

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    2. Dmitri Byzalov & Sudipta Basu, 2016. "Conditional conservatism and disaggregated bad news indicators in accrual models," Review of Accounting Studies, Springer, vol. 21(3), pages 859-897, September.
    3. Araceli Mora & Martin Walker, 2015. "The implications of research on accounting conservatism for accounting standard setting," Accounting and Business Research, Taylor & Francis Journals, vol. 45(5), pages 620-650, August.
    4. Benjamin T. Albersmann & Reiner Quick, 2020. "The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting," Abacus, Accounting Foundation, University of Sydney, vol. 56(1), pages 66-103, March.
    5. Badia, Marc & Duro, Miguel & Penalva, Fernando & Ryan, Stephen, 2017. "Conditionally conservative fair value measurements," Journal of Accounting and Economics, Elsevier, vol. 63(1), pages 75-98.
    6. Marc Badia & Miguel Duro & Fernando Penalva & Stephen G. Ryan, 2021. "Debiasing the Measurement of Conditional Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 59(4), pages 1221-1259, September.
    7. Piotr Wajszczyk, 2016. "Informal Institutions in the Corporate Governance System in Russia," Annales. Ethics in Economic Life, University of Lodz, Faculty of Economics and Sociology, vol. 19(4), pages 113-121, December.
    8. Paul André & Andrei Filip & Luc Paugam, 2016. "Examining the Patterns of Goodwill Impairments in Europe and the US," Accounting in Europe, Taylor & Francis Journals, vol. 13(3), pages 329-352, September.
    9. Bornemann, Tobias, 2018. "Tax avoidance and accounting conservatism," arqus Discussion Papers in Quantitative Tax Research 232, arqus - Arbeitskreis Quantitative Steuerlehre.
    10. Andrei Filip & Gerald J. Lobo & Luc Paugam, 2021. "Managerial discretion to delay the recognition of goodwill impairment: The role of enforcement," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 36-69, January.
    11. Luc Paugam & Pierre Astolfi & Olivier Ramond, 2015. "Accounting for business combinations: Do purchase price allocations matter?," Post-Print hal-01277376, HAL.
    12. Paul André & Andrei Filip & Luc Paugam, 2015. "The Effect of Mandatory IFRS Adoption on Conditional Conservatism in Europe," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(3-4), pages 482-514, April.
    13. Andrei Filip & Thomas Jeanjean & Luc Paugam, 2015. "Using Real Activities to Avoid Goodwill Impairment Losses: Evidence and Effect on Future Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(3-4), pages 515-554, April.

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    More about this item

    Keywords

    Conservatism; Discretionary conservatism; Non-discretionary conservatism; Normal conservatism; GAAP;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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