Does Accounting Conservatism Improve the Corporate Information Environment?

Hu, J., Li, A. Y., & Zhang, F. F., Does accounting conservatism improve the corporate information environment? Journal of international accounting, Auditing and Taxation, 23(1): 32-43, 2014.

29 Pages Posted: 16 Apr 2021

See all articles by Jinshuai Hu

Jinshuai Hu

Xiamen University - Institute for Financial and Accounting Studies

Annie Li

University of Massachusetts Lowell

Feida Zhang

University of Queensland - Accounting and Accountability

Date Written: February 4, 13

Abstract

This study investigates whether and how accounting conservatism improves the corporate information environment. We argue that conservatism facilitates the flow of firm-specific information from corporate insiders to outsiders and leads to a high-quality information environment. Using the Basu (1997) model to capture the extent of accounting conservatism and firm-specific return variation to proxy for the quality of information environment, we find that conservatism is positively associated with the improvement of the corporate information environment in our sample of 43 countries. We also find that the information role of conservatism is more pronounced in countries with weaker protection of private property rights, suggesting that conservatism substitutes for legal institutions in ensuring the quality of information environment.

Keywords: Accounting conservatism; corporate information environment; legal institutions; cross-country study

JEL Classification: G32; M41

Suggested Citation

Hu, Jinshuai and Li, Annie and Zhang, Feida, Does Accounting Conservatism Improve the Corporate Information Environment? (February 4, 13). Hu, J., Li, A. Y., & Zhang, F. F., Does accounting conservatism improve the corporate information environment? Journal of international accounting, Auditing and Taxation, 23(1): 32-43, 2014., Available at SSRN: https://ssrn.com/abstract=3819203

Jinshuai Hu

Xiamen University - Institute for Financial and Accounting Studies ( email )

Xiamen, Fujian 361005
China

Annie Li

University of Massachusetts Lowell ( email )

1 University Ave
Lowell, MA 01854
United States

Feida Zhang (Contact Author)

University of Queensland - Accounting and Accountability ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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