Information Asymmetry and Accounting Conservatism Under IFRS Adoption

51 Pages Posted: 16 Jan 2013 Last revised: 28 May 2013

See all articles by Xiaoting (Christy) Lu

Xiaoting (Christy) Lu

Brock University - Faculty of Business

Samir Trabelsi

Brock University - Accounting

Date Written: January 15, 2013

Abstract

LaFond and Watts (2008) provide evidence that information asymmetry might be a determinant of accounting conservatism. One implication of their paper is that regulators trying to reduce information asymmetry by lowering the level of accounting conservatism might be wrong. However, there is a trend in moving away from conservative accounting. The typical example is IFRS adoption. Therefore, this paper studies information asymmetry and accounting conservatism under IFRS adoption. The results show that the level of accounting conservatism decreases after mandatory IFRS adoption, but the adoption of IFRS is likely to weaken the relationship between information asymmetry and accounting conservatism. Moreover, this paper investigates how the change of accounting conservatism under IFRS is related to the change in information environment. The finding shows that accounting conservatism increases information environment, supporting the idea that, by providing comparatively credible information, conservative accounting is beneficial to the information environment.

Keywords: information asymmetry, accounting conservatism, IFRS

JEL Classification: G30, M41, J33

Suggested Citation

Lu, Xiaoting (Christy) and Trabelsi, Samir, Information Asymmetry and Accounting Conservatism Under IFRS Adoption (January 15, 2013). CAAA Annual Conference 2013. Available at SSRN: https://ssrn.com/abstract=2201206 or http://dx.doi.org/10.2139/ssrn.2201206

Xiaoting (Christy) Lu

Brock University - Faculty of Business ( email )

St. Catharines, Ontario L2S 3A1
Canada

Samir Trabelsi (Contact Author)

Brock University - Accounting ( email )

St. Catharines, Ontario L2S 3A1
Canada

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