An Evaluation of Conditional Conservatism and the Extent to Which This Is Attributable to the Recognition of Asset Impairments

36 Pages Posted: 13 May 2021

See all articles by Andrew Dymock

Andrew Dymock

affiliation not provided to SSRN

Brett J. Govendir

University of Technology Sydney (UTS); Financial Research Network (FIRN)

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ; Financial Research Network (FIRN)

Date Written: May 13, 2021

Abstract

The objective of this paper is to evaluate the extent to which the phenomenon of conditional conservatism documented in the empirical literature (e.g., Basu, 1997) is a consequence of the recognition of asset impairments or whether it is attributable to accounting practices more generally, and whether it is pervasive across firms. The results for a sample of 2,488 Australian firms over the period 2007 to 2016 are inconsistent with the phenomenon as it has been discussed in the literature. For the full sample of firms there is a significant association between negative stock returns and earnings but there is not a significant association between positive stock returns and earnings. Evidence of whether this association between negative stock returns and earnings is attributable to asset impairments is equivocal. Where there is an external indicator of impairment (B>M) there is a symmetric association between stock price changes and earnings. Similarly, for firms with no external indicators of impairment (B

Keywords: AASB 136 / IAS 36 Impairment of assets, conditional conservatism

JEL Classification: M41

Suggested Citation

Dymock, Andrew and Govendir, Brett J. and Wells, Peter Alfred, An Evaluation of Conditional Conservatism and the Extent to Which This Is Attributable to the Recognition of Asset Impairments (May 13, 2021). Available at SSRN: https://ssrn.com/abstract=3845231

Andrew Dymock

affiliation not provided to SSRN

Brett J. Govendir

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia
+61 2 95143582 (Phone)

HOME PAGE: http://www.business.uts.edu.au/

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Peter Alfred Wells (Contact Author)

University of Technology Sydney, Accounting Discipline Group ( email )

P.O. Box 123
Broadway NSW 2007
Australia
+61 (02) 9514 3628 / 3629 (Phone)
+61 (02) 9514 5515 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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