Accruals, Conservatism and Value Relevance in a Transition Economy

17 Pages Posted: 31 Dec 2013

See all articles by Karol Marek Klimczak

Karol Marek Klimczak

Lodz University of Technology

Jan Michalak

University of Lodz

Date Written: December 1, 2013


The goal of this paper is to identify firm-level factors that affect the valuation of companies in a transitional economy of Poland in comparison to companies from developed continental markets of Germany and France. The novelty of our approach rests in a careful construction of the comparable sample, which is a challenge given that Polish companies are relatively small in terms of market capitalization. Therefore we limit our sample to companies for which we can find comparable companies in the other two markets and then use sample matching techniques to identify the comparables. We increase comparability by limiting the sample to IFRS reporting companies and studying only the period after the mandatory adoption of IFRS in the European Union. Then, we measure accruals intensity, conditional conservatism, intangibles intensity and control for negative earnings. Results of valuation model estimations show that cross-country differences in valuation can be explained by the level of accruals intensity and conservatism, the interaction between the two variables, and the interaction between conservatism and intensity of intangible assets. The results imply that it is firm-specific choices in accounting practice that affect the value relevance of earnings rather than the broad factors which characterize each country.

Keywords: valuation, IFRS, conservatism

JEL Classification: G30, M41

Suggested Citation

Klimczak, Karol Marek and Michalak, Jan, Accruals, Conservatism and Value Relevance in a Transition Economy (December 1, 2013). Available at SSRN: or

Karol Marek Klimczak (Contact Author)

Lodz University of Technology ( email )


Jan Michalak

University of Lodz ( email )

Ulica Prezydenta Gabriela
Narutowicza 65 str.
Lodz, 90-131

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