Macroeconomic effects of aggregate accounting conservatism: A cross‐country analysis

Abstract

This paper examines whether aggregate conditional and unconditional conservatism are associated with economic growth. Prior studies find that conditional conservatism improves contracting efficiency, but that unconditional conservatism has either a neutral or detrimental impact on contracting. We therefore conjecture that country‐level conditional conservatism increases the efficiency of resource allocation in an economy, whereas country‐level unconditional conservatism is not similarly beneficial. Using a cross‐country sample, we construct country‐level estimates of conditional and unconditional conservatism. We find that conditional conservatism is associated with higher level of growth in Gross Domestic Product and Gross Domestic Product per Capita. By contrast, unconditional conservatism shows no or negative association. Our study contributes to the ongoing debate on the desirability of accounting conservatism and also extends the literature on the macroeconomic effects of aggregate financial reporting attributes.

Analysis on the Effects of Quality of Financial Statements, Over GDP Forecasting Models. An Empirical Cross-Country Approach

“…(2019) underline how important is that negative earnings should be weighted more heavily, compared with positive earnings. Similar to Do & Nabar (2018), their study confirms that accounting conservatism as well is not a matter on firm level, but a more systematic issue that has implications on macroeconomic estimates as well. The next hypothesis we are going to test is the following: H2: Accounting conservatism significantly influence economic growth forecast error.…”

“…This model shows marginal effect of accounting conservatism on the macroeconomic forecast error. Do & Nabar (2018), economic growth is significantly positively associated with country conditional conservatism. Similar, Gaertner et.…”

“…On those circumstances, it is essential to evaluate the impact of accounting earnings asymmetric timeliness on macroeconomic estimates. Do & Nabar (2018) underline that conditional conservatism determine a positive effect on economic growth, while unconditional accounting conservatism determine a negative or even insignificant impact on economic growth. Moreover, the authors explain part of the accounting conservatism by country institutional framework and cultural dimensions, emphasizing that the conservative component of accounting earnings seem to be a systematic one, visible on macroeconomic indicators as well.…”

“…Summarized, most of the papers address the problem of value relevance of accounting information on macroeconomic estimates (Konchichki & Patatoukas, 2014a;Konchichki & Patatoukas, 2014a;Nallareddy & Ogneva, 2017;Lechien, 2017;Fargher & Zhang, 2020). Additionally, there have been several papers that have analyzed the impact of accounting conservatism on macroeconomic estimates (Do & Nabar, 2018;Gaertner et. al., 2019).…”

“…As of our knowledge, our study adds to a small number of similar studies, that analyze the association between simultaneous measures of quality of financial statements and the forecast error on economic growth estimation. Do & Nabar (2018) have underlined the role of accounting conservatism on macroeconomic estimates. Konchichki & Patatoukas (2014), Lechien (2017) or Fargher & Zhang (2020) have emphasized the value relevance of financial statements on the forecast error on economic growth estimation.…”