Value relevance of conservative and non-conservative accounting information

Dimitrios Kousenidis (dkous@econ.auth.gr), Anestis C. Ladas and Christos I. Negakis

The International Journal of Accounting, 2009, vol. 44, issue 3, 219-238

Abstract: The present paper examines effects of reporting conservatism on the value relevance of accounting earnings of a sample of Greek firms over the period from 1989 to 2003. The results of the paper indicate that conservatism is a salient feature of the Greek Accounting System. Moreover, the results depict that the level of conservatism has increased after the market crisis of 1999, potentially as a result of the additional regulation, imposed by the market authorities during the post-crisis period. Finally, the results show that there is a non-linear association between conservative reporting and value relevance of earnings. In particular, value relevance increases when moving from low-conservative firms to medium-conservative firms and decreases when moving further to high-conservative firms. Overall, the results of the paper lend empirical support to the theoretical underpinnings of Watts (2003a) who, on the one hand, report a number of arguments in favor of conservatism but, on the other hand, questions the practice of excessive conservative reporting as being a potential cause of the distortion of the earnings-returns relation.

Keywords: Conditional; conservatism; Value; relevance; of; accounting; earnings; Cross-sectional; dependence (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:44:y:2009:i:3:p:219-238

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