Reporting incentives for accounting conservatism, evidence from asset and equity tunnelling

Yuying Xie, Liu Zheng and H.L. Amy Lau

Pacific Accounting Review, 2012, vol. 24, issue 2, 138-160

Abstract: Purpose - The purpose of this study is to investigate reporting incentives for accounting conservatism in the context of asset and equity tunnelling and to provide empirical evidence that accounting conservatism can be reported for opportunistic reasons rather than efficiency reasons. Design/methodology/approach - A cross‐sectional analysis of data from the period 2002 to 2004 is conducted. Findings - This study provides empirical evidence that firms undertaking asset or equity tunnelling transactions report higher conservatism than firms undertaking other kinds of connected transactions. Further tests document a positive association between accounting conservatism and the private benefits gained by controlling shareholders from asset and equity tunnelling. Originality/value - Contrary to the prevalent view that accounting conservatism signifies better quality accounting and benefits financial statement users, this study shows that accounting conservatism is influenced by institutional factors and the incentives of financial statement preparers. Researchers should exercise caution in interpreting higher accounting conservatism as an indication of better accounting information quality, especially in cross‐country research involving different institutions.

Keywords: Conservatism; Tunnelling; Connected transactions; Controlling shareholders; Accounting; Hong Kong (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:01140581211258452

DOI: 10.1108/01140581211258452

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Pacific Accounting Review is currently edited by Professor Tom Scott, Dr Pei-Chi Kelly Hsiao, Associate Professor Chelsea Liu, Associate Professor Sophia Su, Associate Professor Thu Phuong Truong and Dr Lily Chen

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