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Conditional Accounting Conservatism Lessens the Cost of Capital: Evidence from Non-Financial Sector of Pakistan

Naveed Razzaq ()
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Naveed Razzaq: Xinyu University, China.

Journal of Finance and Economics Research, 2019, vol. 4, issue 2, 42-49

Abstract: The intention of this research article is to explore the accounting conservatism association with the cost of capital in Pakistani firms. For this examination, data collected from annual reports of 142 firms registered in Pakistan Stock Exchanges (PSX) for the period 2006 to 2011. This paper calculates the cost of capital by employing OJ-Model (2005) and accounting conservatism by using renowned Basu (1997) model. Current paper found a significant negative association of irregular measurement of earnings (bad news or c-score) and the cost of capital, which infers that conservative reporting in Pakistani firms reduces the cost of capital. Furthermore, this study also concludes by finding significant results that risk premium and return on assets have directly proportion relationship with the cost of capital. In extent, present study increases the literature in same vein of study and interest of accounting conservatism in financial reporting and academic research in Pakistan.

Keywords: Conservatism; reduces; cost of capital; Pakistan. (search for similar items in EconPapers)
Date: 2019
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