The association between the firm's uncertainty and conservatism
碩士 === 元智大學 === 會計學系 === 92 === Conservatism is “a prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situation are adequately considered (FASB 1980, No.2).” Intuitively, the firm’s uncertainty is associated with conservatism. We investigate t...
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| Format: | Others |
| Language: | en_US |
| Published: |
2004
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| Online Access: | http://ndltd.ncl.edu.tw/handle/54625622179073075663 |
| Summary: | 碩士 === 元智大學 === 會計學系 === 92 === Conservatism is “a prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situation are adequately considered (FASB 1980, No.2).” Intuitively, the firm’s uncertainty is associated with conservatism. We investigate the association between firm’s risk and conservatism. Specifically, we examine whether adopting conservative accounting would reduce firm’s uncertainty. We suggest that the higher degree of conservatism the firm adopts reduce the firm’s risk in the following period. Furthermore, we investigate whether over (under) conservatism would result in less (more) conservatism in the following period. We obtain strong evidence indicates that conservatism might converge to a long-term mean. Our collective evidence is consistent with the suggestion that the firm’s uncertainty adjusts with the changes in accounting conservatism. An increase in the level of conservatism would result in a decrease in the firm’s uncertainty in the following period. On the other hand, a decrease in the level of conservatism would lead to an increase in firm’s risk in the following period.
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