Estimating a firm-year measure of conditional conservatism for non-U.S. firms: evidence from Japan

Tomoaki Yamashita and Keishi Fujiyama

Asia-Pacific Journal of Accounting & Economics, 2026, vol. 33, issue 1, 75-108

Abstract: C_Score, a firm-year-level conditional conservatism measure, is widely used in international accounting research because of its parsimony, that is, the use of firm size, market-to-book ratio, and leverage as the main variables. However, it is developed for the U.S. and may not be valid in other countries because their institutional features differ from the U.S. We replicate the property tests of Khan and Watts (2009, ‘Estimation and empirical properties of a firm-year measure of conditional conservatism,’ Journal of Accounting and Economics 48: 132–150) and further investigate its validity using data from Japanese listed firms. Our findings are summarized as follows: first, market-to-book ratio and leverage are not statistically significant for many years. Second, C_Score does not predict future asymmetric timeliness of earnings. Third, the three variables’ contributions to C_Score’s variance fluctuate over time. Fourth, our result shows that firm size solely determines the measure for many years. Fifth, cash flow asymmetry, not accrual asymmetry, affects the asymmetric timeliness of earnings across the deciles based on C_Score. Finally, we find no relationship between C_Score and asset write-downs including non-current asset impairments. Overall, our findings suggest that C_Score is not valid for Japanese listed firms.

Date: 2026
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DOI: 10.1080/16081625.2024.2443850

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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