Accounting Conservatism: A Study of Market-Level and Firm-Level Explanatory Factors

• Main Authors: Jingjing Xu, Changjiang Lu
• Format: Article
• Language: English
• Published: Elsevier 2008-06-01
• Series: China Journal of Accounting Research
• Subjects: Accounting Conservatism; market-level; firm-level; A-share companies; H-share companies; red chip companies, China, Hong Kong
• Online Access: http://www.sciencedirect.com/science/article/pii/S1755309113600039

This paper investigates the factors affecting the conservatism of accounting reports at the market-level and firm-level. At the market-level, law and institutional factors explain conservatism, while at the firm-level contracting is the driver. We predict and observe that while both levels jointly affect conservatism, it is firm-level factors that play a dominant role. The conclusion suggests that it is more effective to improve the quality of accounting reports by motivating the firm's own demand rather than through listing in a developed capital market.