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Reporting incentives for accounting conservatism, evidence from asset and equity tunnelling

Reporting incentives for accounting conservatism, evidence from asset and equity tunnelling Purpose – The purpose of this study is to investigate reporting incentives for accounting conservatism in the context of asset and equity tunnelling and to provide empirical evidence that accounting conservatism can be reported for opportunistic reasons rather than efficiency reasons. Design/methodology/approach – A cross‐sectional analysis of data from the period 2002 to 2004 is conducted. Findings – This study provides empirical evidence that firms undertaking asset or equity tunnelling transactions report higher conservatism than firms undertaking other kinds of connected transactions. Further tests document a positive association between accounting conservatism and the private benefits gained by controlling shareholders from asset and equity tunnelling. Originality/value – Contrary to the prevalent view that accounting conservatism signifies better quality accounting and benefits financial statement users, this study shows that accounting conservatism is influenced by institutional factors and the incentives of financial statement preparers. Researchers should exercise caution in interpreting higher accounting conservatism as an indication of better accounting information quality, especially in cross‐country research involving different institutions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

Reporting incentives for accounting conservatism, evidence from asset and equity tunnelling

Pacific Accounting Review , Volume 24 (2): 23 – Sep 7, 2012

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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
0114-0582
DOI
10.1108/01140581211258452
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this study is to investigate reporting incentives for accounting conservatism in the context of asset and equity tunnelling and to provide empirical evidence that accounting conservatism can be reported for opportunistic reasons rather than efficiency reasons. Design/methodology/approach – A cross‐sectional analysis of data from the period 2002 to 2004 is conducted. Findings – This study provides empirical evidence that firms undertaking asset or equity tunnelling transactions report higher conservatism than firms undertaking other kinds of connected transactions. Further tests document a positive association between accounting conservatism and the private benefits gained by controlling shareholders from asset and equity tunnelling. Originality/value – Contrary to the prevalent view that accounting conservatism signifies better quality accounting and benefits financial statement users, this study shows that accounting conservatism is influenced by institutional factors and the incentives of financial statement preparers. Researchers should exercise caution in interpreting higher accounting conservatism as an indication of better accounting information quality, especially in cross‐country research involving different institutions.

Journal

Pacific Accounting ReviewEmerald Publishing

Published: Sep 7, 2012

Keywords: Conservatism; Tunnelling; Connected transactions; Controlling shareholders; Accounting; Hong Kong

References