The Impact of the Asian Financial Crisis on Conservatism and Timeliness of Earnings: Evidence from Hong Kong, Malaysia, Singapore, and Thailand

Abstract

This paper examines conservatism and timeliness of earnings in the period surrounding the 1997 Asian financial crisis in Hong Kong, Malaysia, Singapore, and Thailand. Prior research suggests that managers tended to be more aggressive in reporting good news and delayed recognition of bad news during the financial crisis (less conservative and less timely in financial reporting). After the crisis, these four countries implemented corporate governance measures to stabilize their financial systems and improve regulation and supervision (that should improve conservatism and timeliness). We examine and find that conservatism and timeliness of earnings during the crisis period are low, but improved in the post-crisis period. More importantly, conservatism and timeliness in the post-crisis period is even greater than in the pre-crisis period. We measure conservatism using Basu's model and the accumulation of non-operating accruals suggested by Givoly and Hayn. The findings from both measures are consistent with an increase in conservatism after the crisis period. Overall, the results indicate that corporate governance reforms in these four countries had a positive impact on conservatism and timeliness of earnings.

Are Czech and Estonian Companies Willing To Publicly Present Their Financial Statements? Evidence from Czech and Estonian TOP100

“…This opinion is supported by the studies of Vichitsarawong et al [19] of the impact of the Asian financial crisis on conservatism and timeliness of earnings. Their studies revealed that timeliness of earnings during the crisis period were low, but improved in the post-crisis period.…”

Corporate governance and earnings conservatism in Malaysia

“…This model has been tested in Malaysia by Ball et al (2003) and Vichitsarawong et al (2010) and is as follows:…”

Earnings and Balance Sheet Conservatism in Malaysia: The Effect of Malaysia's Convergence to International Financial Reporting Standards (IFRS)

“…The minimum data required for each firm-year observation are the current year's earnings, the previous fiscal year-end stock price, book value of assets and equity and returns data (Basu, 1997). Following Vichitsarawong et al (2010) and Ball et al (2003), accounting variables are deflated by the beginning of period price to control for heteroscedasticity. In addition, serial correlation of period SUR is reported for regressions to correct for heteroscedasticity and general correlation of observations within a cross-section.…”

“…This means bad news is identified sooner than good news, thus, earnings reflects bad news faster than good ones. Francis, Lafond, Olsson, and Schipper (2004) and Vichitsarawong, Eng and Meek (2010) use conservatism as a measure of financial reporting transparency since conservatism is regarded as a desirable attribute of accounting earnings that can be used in order to avoid unexpected economic downturn and corporate failure.…”