Reliability of Earnings Figures and Conservatism in Transitional Economies

21 Pages Posted: 15 Jun 2007

See all articles by Minna Martikainen

Minna Martikainen

University of Vaasa; Hanken School of Economics

Sanna Tilli

Lappeenranta-Lahti University of Technology (LUT) - Department of Business Administration

Date Written: June 11, 2007

Abstract

Conservatism is one of the attributes of accounting quality. Conservatism is also one of the major reasons for international differences in financial reporting. The objective of this paper is to examine earnings quality proxied by earnings conservatism in transitional economies of Central and Eastern Europe, where financial reporting environment and accounting legislation has been changing rapidly. This is especially important because of fast changing economic and political environment of firms when these countries have joined European Union. Financial reporting had a minor role in planned economy. During transition towards market economy a great challenge for firms is to offer reliable and high quality accounting information to be able to attract non-governmental sources of finance. Reliability of financial reporting has been and still is a severe problem in these countries. Financial reporting practices have been closer to continental tradition, but lately accounting standards have been developed towards International Accounting Standards to meet the information needs of foreign investors. This study importantly contributes to the existing literature by examining earnings quality in transitional economies and especially, by focusing on the extent to which the stage of economic and political transition affects earnings quality. Our empirical results of analyzing listed companies in transitional economies of Central and Eastern Europe during the period from 1999 to 2005 show that there are differences in the degree of conservatism between countries at different stage of transition process.

Keywords: earnings conservatism, financial reporting quality, transitional economies

JEL Classification: M41, M43, M44, M47, P20

Suggested Citation

Martikainen, Minna and Tilli, Sanna, Reliability of Earnings Figures and Conservatism in Transitional Economies (June 11, 2007). Available at SSRN: https://ssrn.com/abstract=992747 or http://dx.doi.org/10.2139/ssrn.992747

Minna Martikainen

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa, FI-65101
Finland
+358504681823 (Phone)

Hanken School of Economics ( email )

PoBox 479
Helsinki, 00100
Finland

Sanna Tilli (Contact Author)

Lappeenranta-Lahti University of Technology (LUT) - Department of Business Administration ( email )

Lappeenranta
Finland

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
317
Abstract Views
1,674
Rank
174,415
PlumX Metrics