Estimating a Firm-Year Measure of Conditional Conservatism for Non-U.S. Firms: Evidence from Japan
Tomoaki Yamashita and
Additional contact information
Tomoaki Yamashita: Faculty of Economics, Fukui Prefectural University, JAPAN
No DP2022-02, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University
The firm-year-level accounting conservatism measure known as C_Score, developed by Khan and Watts (2009), is frequently used in accounting research internationally. However, as they developed the measure was developed the measure for the United States (U.S.), it may not be appropriate for other countries. Thus, we investigate its validity in the Japanese context, where the institutional features substantially differ from those in the U.S. We begin by replicating the tests used by Khan and Watts (2009) and find that some results are consistent with those of the U.S. However, our additional tests suggest that the use of the C_Score in Japan is not necessarily appropriate. First, the coefficients of two of the three coefficients of C_Score factors—market-to-book ratio and leverage—are not statistically significant for many years, and their signs differ from the predictions. Second, we find that the relationship with each of the C_Score factors is unstable and varies over time; furthermore, firm size solely determines the C_Score for several investigated years. Finally, contrary to previous research in the U.S., we find no evidence of the predicted association between C_Score and asset impairment losses, which are typical, conditionally conservative accruals. Overall, our findings suggest that researchers should confirm the validity of the C_Score before applying it to non-U.S. samples.
Keywords: C_Score; Accounting conservatism; Conditional conservatism; Asset Impairments; Japan (search for similar items in EconPapers)
JEL-codes: D82 G34 G38 K22 M41 (search for similar items in EconPapers)
Pages: 55 pages
References: Add references at CitEc
Citations: Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:dp2022-02
Access Statistics for this paper
More papers in Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University 2-1 Rokkodai, Nada, Kobe 657-8501 JAPAN. Contact information at EDIRC.
Bibliographic data for series maintained by Office of Promoting Research Collaboration, Research Institute for Economics & Business Administration, Kobe University ().