Temporal variation and cross-sectional differences of accounting conservatism in emerging countries

Maha Khalifa, Hakim Ben Othman and Khaled Hussainey ()

International Journal of Accounting, Auditing and Performance Evaluation, 2016, vol. 12, issue 1, 45-69

Abstract: Prior research finds that accounting conservatism has increased over time in developed countries. In this paper, we examine the time-series extent and shift of accounting conservatism in emerging countries over the period 2000-2012. We also analyse differences in conservatism level across countries, regions, legal regimes and industries. In addition, we examine the impact of size, market-to-book and leverage on the degree of conservatism at firm level. We use a set of measures to assess the degree of conservatism. These include changing time-series properties of profitability, earnings, cash flows, accruals components, asymmetric timeliness, Market-to-Book ratio and Khan and Watts' (2009) C-score. We find that the degree of conservatism declined during the period between 2000 and 2007 and increased over the period 2007-2012. In addition, we find significant differences in accounting conservatism between common-law and code-law countries, across regions and industries.

Keywords: accounting conservatism; conditional conservatism; loss frequency; cash flows; earnings variability; temporal variation; cross-sectional differences; emerging economies; firm size; market-to-book ratio; leverage; profitability; earnings; accruals components; asymmetric timeliness; C-score; common law countries; code law countries; regions; industries. (search for similar items in EconPapers)
Date: 2016
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