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Conditional Conservatism and the Value Relevance of Accounting Earnings: An International Study


  • William Brown
  • Haihong He
  • Karen Teitel


Using a sample consisting of firms from 20 countries, we investigate whether conditional conservatism affects the value relevance of accounting earnings. We find that the association of conditional conservatism with the value relevance of accounting earnings depends on the country-specific level of accrual intensity. That is, in countries with higher accrual intensity, conditional conservatism is positively associated with the value relevance of earnings. We find that this effect is incremental to that of shareholder protection on the value relevance of accounting earnings documented in Hung (Journal of Accounting and Economics, 30, pp. 401-420, 2001). The results are consistent with conditional conservatism serving as an efficient contracting role to reduce managers' opportunistic behavior in the use of accruals. However, our results also indicate that the benefits of conditional conservatism are contextual and are lost in countries with lower accrual intensity.

Suggested Citation

  • William Brown & Haihong He & Karen Teitel, 2006. "Conditional Conservatism and the Value Relevance of Accounting Earnings: An International Study," European Accounting Review, Taylor & Francis Journals, vol. 15(4), pages 605-626.
  • Handle: RePEc:taf:euract:v:15:y:2006:i:4:p:605-626
    DOI: 10.1080/09638180601102198

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    Cited by:

    1. Nakano, Makoto & Aoki, Yasuharu, 2016. "What Explains Widening Profitability Dispersion Around The World?," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 50(1), pages 23-46, January.
    2. Rahimah Mohamed Yunos Author_Email: & Malcolm Smith & Zubaidah Ismail & Syahrul Ahmar Ahmad, 2011. "Inside Concentrated Owners, Board Of Directors And Accounting Conservatism," Annual Summit on Business and Entrepreneurial Studies (ASBES 2011) Proceeding 2011-053-178, Conference Master Resources.
    3. Pierre Thijssen, Maximiliaan Willem & Iatridis, George Emmanuel, 2016. "Conditional conservatism and value relevance of financial reporting: A study in view of converging accounting standards," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 48-70.
    4. Frederick Lindahl & Hannu Schadéwitz, 2013. "Are Legal Families Related to Financial Reporting Quality?," Abacus, Accounting Foundation, University of Sydney, vol. 49(2), pages 242-267, June.
    5. Veith, Stefan & Werner, Jörg R., 2014. "Comparative Value Relevance Studies: Country Differences Versus Specification Effects," The International Journal of Accounting, Elsevier, vol. 49(3), pages 301-330.
    6. Filip, Andrei & Raffournier, Bernard, 2014. "Financial Crisis And Earnings Management: The European Evidence," The International Journal of Accounting, Elsevier, vol. 49(4), pages 455-478.

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