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Accounting Conservatism

752 Words4 Pages

This paper investigates the extent that board characteristics and board strengths influence the accounting conservatism, estimated by market-based and accrual-based measures, before and during the financial crisis. The percentage of inside directors and the additional directorships (board characteristics) were negatively related with market-based conservatism. This relationship is weaker for the period during the financial crisis compared to the period before the crisis. The negative relationship found between CEO and chairman duality and accrual-based conservatism is weaker during the financial crisis than before crisis, which implies that the financial crisis can be considered as an important element that leads to failures and weaknesses …show more content…

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) support that conservatism damages the quality of financial reporting information (IASB, 2006) and they prefer to focus more on future-oriented financial reporting and improve the relevance of financial reporting. On the contrary, accounting conservatism implies a focus to past events. Moreover, according to the FASB (1980), conservatism is incongruent with some other qualitative characteristics, such as neutrality, comparability, consistency and representational faithfulness. However, Givoly and Hayn (2000) reported a significant increase of accounting conservatism in the last few …show more content…

This is because corporate governance plays an important role in increasing firm performance and value, but it could be affected by financial exogenous shocks (Aldamen et al., 2012). Thus, the main aim and contribution of this study is the inquiry of the potential impact of the board characteristics and board strengths on accounting conservatism before and during the financial crisis. Moreover, this study contributes by incorporating in the analysis the financial and insurance sectors which were excluded in relevant prior research (Ahmed and Duellman, 2007). The next section refers to the literature review about accounting conservatism and its association with corporate governance and board characteristics, followed by the research hypotheses, the research methodology and the sample selection process. Subsequently, the research results are discussed, and eventually, our conclusions, limitations and proposals are

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