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

Published Online:pp 45-69https://doi.org/10.1504/IJAAPE.2016.073887

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