Victoria University

Accounting Conservatism

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dc.contributor.advisor van Zijl, Tony
dc.contributor.advisor O'Hogartaigh, Ciaran Wang, Zhe (Richard) 2010-07-21T03:21:33Z 2010-07-21T03:21:33Z 2009 2009
dc.description.abstract This thesis provides an in-depth examination of accounting conservatism, which is one of the oldest and most important principles of accounting (Sterling, 1967;Watts, 2003a). Two main questions relating to accounting conservatism are extensively studied in this thesis: (1) How to measure accounting conservatism? (2) Why do firms adopt accounting conservatism? This thesis consists of three main chapters that answer these two questions from three different perspectives. The first chapter studies the existing empirical measures of accounting conservatism from a construct validity perspective and concludes that construct validity of the existing measures is mixed to low. The second chapter examines the validity and bias in the Basu (1997) measure of accounting conservatism - one of the most widely used measure of conservatism in the accounting literature. The second chapter shows, analytically and empirically, that the Basu (1997) measure is biased upwards by the default risk of a firm, and proposes a new measure of conservatism that is free from this bias. This new measure of conservatism is called the "Default-Adjusted-Basu" measure. The third chapter investigates the economic rationale for accounting conservatism, and proposes a signalling theory for accounting conservatism. In a debt market characterized by information asymmetry, a borrower firm's degree of conservatism can serve as a credible signal about that borrower firm's level of operating risk to the lenders in the debt market. Thus, one potential benefit of accounting conservatism is that it can reduce the degree of information asymmetry in the debt market. en_NZ
dc.language.iso en_NZ
dc.publisher Victoria University of Wellington en_NZ
dc.subject Managerial accounting en_NZ
dc.subject Accounting theory en_NZ
dc.subject Basu measure en_NZ
dc.subject Conservatism en_NZ
dc.title Accounting Conservatism en_NZ
dc.type Text en_NZ
vuwschema.contributor.unit School of Accounting and Commercial Law en_NZ
vuwschema.subject.marsden 350100 Accounting, Auditing and Accountability en_NZ
vuwschema.type.vuw Awarded Doctoral Thesis en_NZ Accounting en_NZ Victoria University of Wellington en_NZ Doctoral en_NZ Doctor of Philosophy en_NZ
vuwschema.subject.anzsrcfor 150102 Auditing and Accountability en_NZ

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