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 language | English |
|---|---|
| Pages (from-to) | 143-173 |
| Number of pages | 31 |
| Journal | Review of Quantitative Finance and Accounting |
| Volume | 27 |
| Issue number | 2 |
| DOIs | |
| State | Published - Sep 2006 |
Bibliographical note
Funding Information:Acknowledgements Comments from Brian Gaber, Sung Kim, Gerald Lobo, Gordian Ndubizu, Emeka Nwaeze, John Wild, seminar participants at Rutgers University—Camden and York University, participants at the 2005 Canadian Academic Accounting Association Annual Conference in Quebec City, the 2004 Pacific Basin Finance, Economics, Accounting, and Business International Conference in Bangkok, the 2004 Decision Science Annual Conference in Boston, and the 2004 American Accounting Association Annual Conference in Orlando are greatly appreciated. Kwon acknowledges the financial support from the Research Grant Program of the School of Administrative Studies at York University. Yin and Han acknowledge the financial support from the Research Grant Program of the School of Business at Rutgers University.
Keywords
- Conservatism
- Earnings management
- High-tech
- Low-tech