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The Effect of the Global Financial Crisis on the Level of Accounting Conservatism in Commercial Banks: Evidence from Jordan

Author

Listed:
  • Yusuf Al-Hroot
  • Laith AL-Qudah
  • Faris Alkharabsha

Abstract

This paper intends to investigate whether the financial crisis (2008) exerted an impact on the level of accounting conservatism in the case of Jordanian commercial banks before and during the financial crisis. The sample of this study includes 78 observations; these observations are based on the financial statements of all commercial banks in Jordan and may be referred to as cross-sectional data, whereas the period from 2005 to 2011 represents a range of years characterized by time series data. The appropriate regression model to measure the relationship between cross-sectional data and time series data is in this case the pooled data regression (PDR) using the ordinary least squares (OLS) method. The results indicate that the level of accounting conservatism had been steadily increasing over a period of three years from 2005 to 2007. The results also indicate that the level of accounting conservatism was subjected to an increase during crisis period between 2009 and 2011 compared with the level of accounting conservatism for the period 2005-2007 preceding the global financial crisis. The F-test was used in order to test the significant differences between the regression coefficients for the period before and during the global financial crisis. The results indicate a positive impact on the accounting conservatism during the global financial crisis compared with the period before the global financial crisis. The p-value is 0.040 which indicates that there are statistically significant differences between the two periods; these results are consistent with the results in Sampaio (2015).

Suggested Citation

  • Yusuf Al-Hroot & Laith AL-Qudah & Faris Alkharabsha, 2017. "The Effect of the Global Financial Crisis on the Level of Accounting Conservatism in Commercial Banks: Evidence from Jordan," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(2), pages 151-151, January.
    • Handle: RePEc:ibn:ijbmjn:v:12:y:2017:i:2:p:151
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    References listed on IDEAS

    as
    1. Karthik Balakrishnan & Ross Watts & Luo Zuo, 2016. "The Effect of Accounting Conservatism on Corporate Investment during the Global Financial Crisis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 43(5-6), pages 513-542, May.
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    3. Chung, Hyeesoo H. & Wynn, Jinyoung P., 2008. "Managerial legal liability coverage and earnings conservatism," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 135-153, September.
    4. Ettredge, Michael & Huang, Ying & Zhang, Weining, 2012. "Earnings restatements and differential timeliness of accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 489-503.
    5. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    6. Francis, Bill & Hasan, Iftekhar & Wu, Qiang, 2013. "The benefits of conservative accounting to shareholders : Evidence from the financial crisis," Research Discussion Papers 8/2013, Bank of Finland.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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