Conditional conservatism and cost of capital

Lara, Juan Manuel Garcı́a; Osma, Beatriz Garcı́a; Peñalva, Fernando

doi:10.1007/s11142-010-9133-4

Cited by 190 publications

(84 citation statements)

References 67 publications

(92 reference statements)

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“…It is also supported by the results of (Khalifa & Ben Othman, 2015;Zare et al,. 2013;Lara et al, 2011;Gietzmann & Trombetta, 2003). Thus, this result leads to the rejection of the first main null hypothesis in this study.…”

Section: Results Of Main Research Hypotheses Testsupporting

confidence: 63%

“…Regarding conservatism, results indicated lack of compliance with accounting conservatism during preparing the financial statements. (Lara, Osma, & Penalva, 2011) investigated the relationship between conditional conservatism and firm's cost of equity capital by using asset-pricing test to study whether more conditionally conservative firms gain lower expected returns and by analyzed the relation between conditional conservatism and implied cost of capital as a proxy to estimate the cost of equity capital. The outcomes of their study showed that there is a significant adverse relationship between conditional conservatism and the cost of equity capital.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Accounting Conservatism and Voluntary Disclosure on the Cost of Capital of Industrial Companies in Jordan

Warad¹,

Al-Debi’e

2017

AFR

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This study aims at examining the impact of accounting conservatism and voluntary disclosure on the cost of capital of industrial companies in Jordan during the period (2009)(2010)(2011)(2012)(2013). Panel OLS regression analysis was employed to test the hypotheses of the study. The results of the full sample model revealed that accounting conservatism and voluntary disclosure have significant negative impacts on the firms' cost of capital.Furthermore, the results of the sub-samples which distinguish between large and small, as well as between high and low leverage firms showed that the sub-sample of large and small firms conforms to the full sample results. Across the sub-sample of high leverage firms, the results showed that only voluntary disclosure has a significant negative impact on the firm's cost of capital. On the other hand, only accounting conservatism has a significant negative impact on the firm's cost of capital across the sub-sample of low leverage firms.

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Section: Results Of Main Research Hypotheses Testsupporting

confidence: 63%

Section: Introductionmentioning

confidence: 99%

The Impact of Accounting Conservatism and Voluntary Disclosure on the Cost of Capital of Industrial Companies in Jordan

Warad¹,

Al-Debi’e

2017

AFR

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“…In the same vein, a set of studies showed that conservatism benefits to debt contracting (Zhang, 2008;Nikolaev, 2009). Besides this contracting effect, other works support that accounting conservatism enhances firm value by mitigating information asymmetry and constraining earnings managements (LaFond and Roychowdhury, 2008;LaFond and Watts, 2008;Francis and Martin, 2010;García Lara et al, 2011;Ettredge et al, 2012;Kim and Zhang, 2013). Other studies explore the implications of capital market with regard to conservative accounting, especially the impact of conservatism on the cost of equity capital.…”

Section: Introductionmentioning

confidence: 97%

“…Many studies reveal that not only conservatism is still an accounting practice that defeated other accounting principles, but its degree has increased over the last 30 years (Givoly and Hayn, 2000;Giner and Rees, 2001;Grambovas et al, 2006). García Lara et al (2011) argue that this omnipresence may be attributed to the potential beneficial effects of conservatism for all the stakeholders of the firm.…”

Section: Introductionmentioning

confidence: 99%

The effect of conservatism on cost of capital: MENA evidence

Khalifa

Othman

2014

Applied Economics

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The purpose of this article is to investigate the economic consequences of accounting conservatism in the Middle Eastern and North African (MENA) region. In particular, motivated by the lack of such studies in the context of emerging countries, we empirically examine the effect of conditional conservatism on firms' cost of equity capital. Using a sample of firms pertaining to 13 MENA countries during the period 2004-2007, we conduct three sets of tests. First, we assess the existence of conservatism in our sample following the model of Basu (1997). Second, we examine the association between conservatism and cost of equity capital. Third, we test the effect of two disaggregated measures of conservatismconservatism with respect to bad news (BNEWS) and conservatism with respect to good news (GNEWS) on the cost of equity.Results suggest that, overall firms in MENA region adopt conservative reporting. Furthermore, as predicted we find a negative association between conditional conservatism and the cost of equity capital. This evidence is robust to time series changes of variables and cross-country differences. The results also report a negative association between the two disaggregated measures of conservatism and the cost of equity capital. Our article gives additional light on the benefits of accounting conservatism.

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“…An impressive amount of literature has analysed how the information reported compulsorily in the fi nancial statements should be to reduce the problems created by information asymmetries. One example of this literature is the large stream of studies about whether accounting numbers should be more or less conservative (LaFond & Watts, 2008, García Lara, García Osma & Penalva, 2011. Similarly, there are many studies analysing whether and how voluntary disclosure contributes to reduce adverse selection problems.…”

Section: Discussionmentioning

confidence: 99%

Disclosure theories and disclosure measures

Urquiza

Navarro

Trombetta³

et al. 2010

Spanish Journal of Finance and Accounting / Revista Española de

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Theories have been developed in the disclosure literature to explain the reasons behind the decision to disclose more information. Empirical evidence does not consistently support disclosure theories and results found are contradictory. The diffi culty in measuring voluntary disclosure might be one of the reasons infl uencing on these divergences. In this paper, we investigate two key questions related to disclosure measurement. First, we aim to empirically test if use of disclosure indices that measure different information attributes determines validity of disclosure theories. Second, we investigate how disclosure indices design infl uences results. Results show that determinants of more specifi c information attributes are different than those that infl uence less specifi c attributes. Furthermore, independently of the information attribute that is measured, disclosure measure design infl uences results.KEY WORDS Disclosure indices; Disclosure determinants; Forward-looking information; Disclosure theories.RESUMEN En la literatura sobre divulgación de información se han desarrollado diversas teorías para explicar los motivos que llevan a las empresas a divulgar más información. La evidencia empírica no apoya consistentemente las teorías y los resultados encontrados son contradictorios. Estas divergencias podrían estar ocasionadas por problemas implícitos a la medición de la información voluntaria. En este trabajo, se estudian dos cuestiones clave relacionadas con este problema. Primeramente, investigamos si el uso de índices de revelación que captan diferentes atributos informativos determina la validez de las teorías enunciadas sobre la divulgación de información. Por otro lado, analizamos la infl uencia de utilizar distintas medidas de la información. Los resultados muestran que los determinantes de atributos informativos más específi cos son distintos de aquellos factores que infl uyen en la divulgación de atributos menos específi cos. Además, independientemente del atributo informativo que es medido, el diseño de un índice de revelación infl uye en los resultados obtenidos. PALABRAS CLAVE Divulgación de información; Determinantes de la divulgación; Información previsional; Teorías sobre divulgación.

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Conditional conservatism and cost of capital

Cited by 190 publications

References 67 publications

The Impact of Accounting Conservatism and Voluntary Disclosure on the Cost of Capital of Industrial Companies in Jordan

The Impact of Accounting Conservatism and Voluntary Disclosure on the Cost of Capital of Industrial Companies in Jordan

The effect of conservatism on cost of capital: MENA evidence

Disclosure theories and disclosure measures

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