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The paper investigates the influence of ownership structures and board of directors’ characteristics on the extent of conservative accounting practiced by listed companies in Vietnam covering 558 firms with 2,161 observations in the period of 2011–2022. The authors rely on the quantitative method and multivariate regression analyses to verify the proposed hypotheses. Concerning the influence of ownership variables, the findings explore that state ownership (SO) and foreign ownership (FO) demonstrate a significant negative association with firms’ conservatism level, whereas large ownership (LO) indicates a significant positive association with firms’ conservatism degree. No association between management ownership (MO) and firm’s conservatives was found in this study. With regard to board of directors’ characteristic variables, the study results show that size of the board (BS), independence of the board (BI), and women on the board (GD) positively associated with firms’ conservatism report, while duality (DUAL) demonstrates a significant negative association with firms’ conservatism level. The research suggests some implications and recommendations for regulatory agencies, listed firms, investors, and other stakeholders to have appropriate behavioral decisions related to ownership structures and board characteristics of listed firms to ensure high level of accounting conservatism in a frontier market as Vietnam.

Copyright of Polish Journal of Management Studies is the property of Czestochowa University of Technology, Faculty of Management and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The purpose of this paper is to determine the implementation of conservative accounting from the perspective of financial statements which include tax incentives, debt contracts, and political costs as research variables in manufacturing companies. The research population is the manufacturing sector listed on the Indonesia Stock Exchange with a total of 178 companies and a purposive sample obtained by 78 companies with data collection techniques using documentation. Mulvariate regression techniques is the analytical tool used, and the results obtained indicate that tax incentives have a significant positive effect on conservative accounting. By contrast, debt contracts and political costs have no significant effect on conservative accounting. This paper provides encouragement to investors when evaluating financial statement changes related to conservatism, especially those relating to tax incentive accounts, debt convenant, and political costs.

Copyright of Omer Halisdemir Universitesi Iktisadi ve Idari Bilimler Fakültesi Dergisi is the property of Omer Halisdemir University, Faculty of Economics & Admistrative Sciene and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Doğru kazançların raporlara yansıtılmasını ifade eden kazanç kalitesini pek çok faktör etkileyebilmektedir. Çalışma bu doğrultuda kurumsal yönetim, şirket büyüklüğü ve muhafazakâr muhasebenin kazanç kalitesine etkisini belirlemeyi amaçlamaktadır. Çalışma bu amaçla 2012-2021 yıllarında Borsa İstanbul’da mali kuruluşlar sektöründe işlem gören 26 holding ve yatırım şirketini incelemektedir. Çalışma kapsamında gelir kalitesi oranı, şirket yaşı, yönetim kurulu büyüklüğü, yönetim kurulu bağımsızlığı, şirket büyüklüğü ve tahakkuk esasına göre belirlenen muhafazakâr muhasebe değişkeni kullanılmıştır. Çalışmada kurumsal yönetim, muhafazakâr muhasebe ve şirket büyüklüğünün kazanç kalitesi üzerine etkisinin olup olmadığını ölçmek için panel veri analiz yöntemi kullanılmıştır. Çalışma sonuçları kurumsal yönetimin ve muhafazakâr muhasebenin kazanç kalitesi üzerine anlamlı etkisi olduğuna dair kanıtlar ortaya koymaktadır. Muhafazakâr muhasebe düzeyi ile kazanç kalitesi arasında anlamlı fakat ters yönde bir ilişki olduğu görülmektedir. Kurumsal yönetim göstergelerinden şirket yaşı ve yönetim kurulu büyüklüğü ile kazanç kalitesi arasında pozitif ve anlamlı ilişkinin varlığı belirlenmektedir. Şirket büyüklüğünün kazanç kalitesi üzerine anlamlı bir etkisi ise belirlenememiştir.

Investors are much more likely to sue corporations and their auditors for overstated earnings reports than for understated reports. This asymmetry in litigation exposure is viewed as an important driver for conservative accounting practices in corporations because conservatism reduces the probability of overstatements and hence, investor litigation. This argument is incomplete, however, because it ignores that litigation concerns also affect the incentives of the auditor, which, in turn, affect the firm's optimal reporting system. We find that the threat of litigation encourages firms to report more conservatively only when the auditor's cost of detecting misstatements is relatively high but promotes less conservative reporting when the auditor's cost of auditing is low. This paper was accepted by Brian Bushee, accounting [ABSTRACT FROM AUTHOR]

Copyright of Accounting & Auditing Perspective Magazine / Muhasebe ve Denetime Bakış is the property of Union of Chambers of Certified Public Accountants of Turkey (TURMOB) and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Research background: The paper investigates the earnings management phenomenon in the context of Central European countries, attempting to identify the factors and incentives that can influence earnings management behavior on a sample of 8,156 enterprises from Slovakia, the Czech Republic, Hungary, and Poland. Purpose of the article: The main purpose of the manuscript is to prove that there are significant differences in earnings management practices (measured by discretionary accruals) across the countries and to find the firm-specific features that influence the way enterprises manage their earnings. Methods: The modified Jones model was used to calculate the discretionary accruals, which are further analyzed across the countries. The statistically significant differences were confirmed across the countries. Thus, the impact of the economic sector, firm size, firm age, legal form, and ownership structure on earnings management behavior is studied by the Kruskal-Wallis test. The Dunn-Bonferroni post hoc tests then revealed the significant differences across the categories of the investigated earnings management determinants. To find the association between the particular earnings management practice (income-increasing or income-decreasing manipulation), correspondence analysis was used to visualize the mutual relations. Findings & value added: The results of the realized investigation revealed that the economic sector is one of the most important earnings management determinants, as its statistical significance was confirmed in each analyzed country. The correspondence analysis determined specific sectors, where income-increasing manipulation with earnings is practiced (NACE codes F, J, K, M, N), and vice versa, income-decreasing earnings management is characteristic for enterprises in sectors A, C, D, G or L. In specific economic conditions, firm size is also a relevant indicator (Hungary), or firm age and legal form and ownership structure (Poland). The recognition of crucial earnings management incentives may be helpful for authorities, policymakers, analysts and auditors when identifying various techniques and practices of earnings manipulation which could vary across the sectors and taking necessary measures to mitigate potential financial risks. [ABSTRACT FROM AUTHOR]

This paper provides a theoretical explanation for the observation that firms with strong corporate governance exhibit more conservative accounting. We study one of a board's most important decisions: to retain or replace the incumbent manager. The board uses accounting information and additional information from costly board monitoring. We show that if the accounting information is useful only for the replacement decision, then conservatism is harmful because it leads to too much replacement. If accounting information is relevant for the board's decision whether to monitor, then conservatism is beneficial when the board is a sufficiently efficient monitor. We also provide several predictions for empirical tests. [ABSTRACT FROM AUTHOR]

We use the staggered adoption of the Universal Demand Laws (UD Laws) to examine the effect of an exogenous reduction in shareholders' ability to litigate on the extent of accounting conservatism. On average, we find an increase in reporting conservatism post-UD. The increased conservatism is concentrated in firms that contemplate equity issuance, with a high proportion of monitoring investors, and high corporate governance quality. In contrast, firms with specific short-term incentives for aggressive accounting—such as those narrowly beating benchmarks, those with abnormal insider trading, and those likely to violate debt covenants—weakly governed firms, and firms with high ex ante litigation risk decrease reporting conservatism after UD. Our results suggest that the relation between the litigation environment and reporting conservatism is complex and dependent on specific characteristics and unique circumstances of the firms. [ABSTRACT FROM AUTHOR]

This paper revises the standard interpretation of the book rate of return as a measure of profitability. Rather, due to conservative accounting, the book rate of return informs about risk and the expected return to the investor. In contrast to asset pricing research, where the book rate of return is viewed as positively associated with risk and expected stock returns, the paper demonstrates the opposite: with the effect of conservative accounting, the book rate of return is negatively associated with risk and expected return. The empirical analysis indicates that the market prices equities accordingly. It also shows how the previously documented positive correlation is due to a misunderstanding of accounting and how the book rate of return enters into asset pricing in a way that is consistent with the accounting. [ABSTRACT FROM AUTHOR]

Copyright of Business Consultant / Poslovni Konsultant is the property of FINconsult Ltd. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Cash holdings in the company, despite the benefits of the ability to conduct business transactions, are the basis for creating problems such as the potential increase of nonfinancial investments due to agency issues. Therefore, conservative accounting practices, due to the efficient use of cash held, can reduce the cost of representing conflicting incentives between shareholders and managers. Therefore, the purpose of this study is to investigate the relationship between the value cash held balance and conservative accounting with an emphasis on the of modificating role of controlling shareholders. A sample of 111 companies listed in Tehran Stock Exchange during the period of 2012 to 2016 is delected. To test the research hypotheses a multivariable regression model is used. The results show that, in the absence of controlling shareholders, with a higher degree of conservatism cash is held, in accordance with the results of the second hypothesis of research, the strengthening of the dominant control of shareholders, would reduce the positive effects of conservative accounting activities on cash value. The findings of testing the third hypothesis also suggests that strengthening the supervisory dimension of controlling shareholders does not increase the positive relationship between cash and conservative accounting. [ABSTRACT FROM AUTHOR]

We analyze a model of voluntary disclosure where investors impose a discount for uncertainty about firm value. We find that a commitment to conservative reporting, defined as a requirement that firms disclose bad realizations of economic events, results in firm prices being higher, on average. Intuitively, in the absence of mandatory disclosure requirements, managers have incentives to disclose voluntarily information about good realizations and withhold information about bad realizations. Thus, a financial reporting system that requires timely reporting of low realizations results in lower uncertainty and higher firm value. Importantly, we interpret a commitment to conservative reporting to include not only reported earnings, but, more broadly, any mechanism that commits managers to disclose, such as required footnotes and explanations in corporate filings. Beyond a capital market setting, our model also applies to other adverse selection settings, including governance, litigation, and debt contracting, where timely disclosure of bad news improves efficiency. [ABSTRACT FROM AUTHOR]

Economic decision-making needs information; lack of information results ambiguity of decision. Financial reports provide most of the information needed in process of decision-making (D-M). Previous researches indicate that the accounting earning (AE) is the sole and the most used item of accounting information in economic DM, therefore the earning quality (EQ) is very important to investors and creditors. This research study indicates the effect of accounting conservatism to the earning quality and stock return. The result shows that some of the changes in Return on Asset (ROA) can be using conservatism procedures, which reduce quality of earning.

Studies related to the measurement of accounting numbers have tended to focus on accounting as it relates to: changes in equity values; equity valuation; estimation of the cost of equity capital; and prediction of equity earnings. I propose and justify a perspective for financial accounting research on measurement of accounting numbers that differs from the current generally applied perspective. I argue that important new insights will be gained if research efforts turn toward accounting measurement and valuation at the enterprise/operating/firm level. [ABSTRACT FROM AUTHOR]

We examine the effect of lender monitoring through board representation, which we label ''affiliated banker on board'' (AFB) on conservative accounting. We hypothesize that monitoring reduces lenders' demand for conservatism-facilitated control transfers through debt covenants by reducing the information asymmetry that underlies the agency problem of debt. Consistent with our hypothesis, we find that AFB firms have markedly lower conservative accounting than non-AFB firms. This result is robust to a battery of tests that account for bias from both observable and unobservable factors. We also find additional evidence to support key elements of our hypothesis. First, an examination of the relation between borrower-unfavorable renegotiations and covenant violations suggests that board representation allows lenders to renegotiate in a timelier manner based on private information. Second, an examination of the relation between covenant intensity and conservative accounting suggests that board representation decreases lenders' reliance on conservatism-facilitated control transfers. Finally, an analysis that uses relationship lending as an alternative proxy of lender monitoring suggests that it is lender monitoring, and not AFB per se, that reduces demand for conservative accounting. [ABSTRACT FROM AUTHOR]

This paper investigates the influence of different financing channels-bond issuance or bank loans-as well as debt maturity and the quality of financial reporting on the cost of debt in China. The authors find that conservative accounting is an important characteristic of high-quality financial reporting that can reduce the cost of longer maturity debt such as bank loans and bonds. Even state-owned enterprises, which have fewer financial constraints than non-state-owned enterprises, benefit from accounting conservatism's ability to reduce financial costs. Moreover, the findings indicate that bond investors are concerned about the issuer's fundamentals, while banks are more likely to focus on the operation and bankruptcy risk of borrowers. [ABSTRACT FROM AUTHOR]

Several studies document that investors systematically overreact to accrual-based accounting information. We address the question to what extent this accrual anomaly is related to different accounting standards. We provide empirical evidence that the accrual anomaly is also present in Germany. However, this anomaly seems mainly to be driven by firms presenting their financial statements under IFRS or US-GAAP, while the anomaly is unlikely to exist for those firms complying with German GAAP. It is argued that introducing true and fair view accounting, like IFRS, that relies on difficult-to-verify information, may not be suitable to improve accounting information quality in the context of a weak corporate governance system. [ABSTRACT FROM AUTHOR]

Dechow and Ge (2006, Review of Accounting Studies, 11) add new descriptive evidence to the literature on earnings behavior and investor reaction to earnings. Specifically, they find that low accrual firms with negative special items have higher returns on assets and higher market returns in future years. Their paper raises interesting questions about conservative accounting and about the effect of special items on the future performance of distressed firms. However, because the authors position their paper as an investigation of the accruals anomaly they don’t explore many of the issues they raise, and so miss an opportunity to make a more substantive contribution to our understanding of the behavior of and reaction to accounting information. [ABSTRACT FROM AUTHOR]

Following Sloan (1996), numerous studies document that the accrual component of earnings is less persistent than the cash flow component of earnings. Disagreement exists, however, as to the explanation for this result. One stream of literature follows Sloan's lead in arguing that this result is attributable to accounting distortions (Xie 2001; Dechow and Dichev 2002; Richardson et al. 2005). A second stream of literature argues that this result is attributable to a more general growth effect and that growth-related factors such as diminishing returns to new investment explain the lower persistence of accruals (e.g., Fairfield et al. 2003a; Cooper et al. 2005). We provide new evidence indicating that temporary accounting distortions are a significant contributing factor to the lower persistence of the accrual component of earnings. Our evidence indicates that the lower persistence of accruals extends to accruals that are unrelated to sales growth and that extreme accruals are systematically associated with alleged cases of earnings manipulation. [ABSTRACT FROM AUTHOR]

This paper discusses Monahan’s empirical study of how conservative accounting of R&D affects the relations (i) between earnings and stock return; (ii) between estimates of value using the residual income valuation model and equity market value. My discussion focuses on the underlying mechanism of why growth matters and how the growth rate should be measured. In particular, I argue that different aspects of growth (e.g., short-term growth versus long-term growth) matter under different circumstances, depending on the intended use of accounting data. Failure to adjust for these differences affects the effectiveness of the empirical tests. The discussion also considers the impacts of potential noise in the R&D capitalization procedure and the presence of other intangible assets. [ABSTRACT FROM AUTHOR]

This paper investigates the determinants of residual income scaled by book value of equity, i.e., abnormal return on equity (ROE), by analyzing the impact of value-creation (economic rents) and value-recording (conservative accounting) processes on abnormal ROE. I rely on economic theories to characterize economic rents and develop an empirical measure--the conservative accounting factor--to capture the effect of conservative accounting. As expected, industry abnormal ROE increases with industry concentration, industry-level barriers to entry, and industry conservative accounting factors. Also as expected, the difference between firm and industry abnormal ROE increases with market share, firm size, firm-level barriers to entry, and firm conservative accounting factors. Integrating these determinants into the residual income valuation model significantly increases its explanatory power for the variation in the market-to-book ratio. [ABSTRACT FROM AUTHOR]

We analyze a principal-agent setting with multiple sources of contracting information in which the signal from each source can be unmistakably interpreted as "good" or "bad" news. We then ask whether it is best to condition the acquisition of one of the information sources on whether the earlier reporting source has reported "good" or "bad" news. That is, is it efficient to "chase the good news" or to "chase the bad news"? The answer depends on whether the earlier source is publicly observed or self-reported by the agent. We also explore ties to institutional features, and in particular conservative accounting treatments. [ABSTRACT FROM AUTHOR]

Recent studies indicate that both current R&D investment levels and current or recent changes in R&D investment are positively associated with subsequent excess (risk-adjusted) stock returns. The tentative explanation offered for these results is that shares of R&D-intensive firms are "mispriced" because investors fail to see through earnings distortions caused by conservative accounting for R&D costs. However, an alternative explanation is that conventional controls for risk do not completely capture the riskiness of R&D-intensive firms, causing measured excess returns for these firms to be biased upward. This study provides evidence useful for distinguishing between the mispricing and risk explanations for R&D-related excess returns. Overall, our empirical results suggest that the positive association between R&D investment levels and excess returns is more likely to result from failure to control adequately for risk than from mispricing. On the other hand, our results do not rule out the possibility of a second source of excess returns that are due to mispricing and that are associated with changes in the level of R&D investment. [ABSTRACT FROM AUTHOR]