The effect of differential accounting conservatism on the "over-valuation" of high-tech firms relative to low-tech firms

Sung S. Kwon, Qin Jennifer Yin, Jongsoo Han

Research output: Contribution to journalArticlepeer-review

25 Scopus citations

Abstract

This paper examines systematic differences in the level of accounting conservatism between high-tech and low-tech firms. Relying on the recent development in theoretical models and empirical measures of conservatism, we investigate conservative accounting practices and earnings management behavior in high-tech and low-tech firms. The results based on comparisons of cumulative nonoperating accruals, regression coefficients from the income timeliness models in Basu (1997), the distribution of earnings, and discretionary accruals between the two groups are consistent with a higher level of accounting conservatism in high-tech firms vis-à-vis low-tech firms. Additional analyses show that the effect of conservatism cannot be used as a defense for the over-valuation of high-tech firms.

Original languageEnglish
Pages (from-to)143-173
Number of pages31
JournalReview of Quantitative Finance and Accounting
Volume27
Issue number2
DOIs
StatePublished - Sep 2006

Keywords

  • Conservatism
  • Earnings management
  • High-tech
  • Low-tech

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