This paper presents the results of conditional conservatism association with cost of capital as formulated from above model. Table 4 shows the regression analysis of conservatism and the cost of capital. In same vein, Francis et al. (2004); Chan et al. (2009); Artiach and Clarkson (2011); Lara et al. (2011); R. A. Lambert et al. (2011); Li (2015); Khalifa and Ben Othman (2015) investigated the conditional conservatism impact on cost of capital. Similarly, Guay and Verrecchia (2007) and Suijs (2008) also claimed that asymmetric time- liness of earnings (bad news) lessens the cost of capital. We approached conservatism and cost of capital association in different manners such as data sample and variables selection. We estimates model with year and industry fixed effect. Table 4 explains re- sults of panel data estimation. We hypothesized that conditional conservatism lowers the cost of capital, accordingly, are also expecting negative association between conditional conservatism and cost of capital. Table 4 shows that conditional conservatism (CCONS) significant negatively related with cost of capital (CostCap). Conservatism (CCONS) neg- atively significant at 1% level (coeff. = -0.0283, t-value =-2.75 ). This result suggests that we accept the hypothesis (H1) in the favour of that conservatism diminishes the cost of capital in Chinese firms. Furthermore, Table 4 represents that the cost of capital (Cost- Cap) positively correlated with leverage (LEVR), return on assets (ROA), firm size (SIZE) and market to book ratio (MB) and all are significant at 1 % level with (coeff.= 0.0143, t-value= 7.01), (coeff. = 0.0066, t-value= 6.09) and (coeff=.0.0073, t-value = 5.460) and (co- eff.=0.0002, t-value= 2.71) respectively. We were expecting negative correlation of cost of capital (CostCap) with return on assets (ROA), firm size (SIZE) and market to book ratio (MB) because negative relation shows that lower the cost of capital then greater the re- turn on assets(ROA), firm size (SIZE) and market to book ratio (MB), our results are vice versa. According to prior research Lara et al. (2011); Li (2015); Khalifa and Ben Othman (2015), we also found that leverage (LEVR) positively related with cost of capital (Cost- Cap) which infers that leverage increases the cost of capital.
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본 연구는 보수주의적 재무보고가 차기 신용등급에 미치는 영향을 검증하는 것을 목적으로 한다. 1997년 외환위 기 이후 신용등급은 투자자에 있어 매우 중요한 지표로 인지되어 왔고 기업들은 이를 유지하거나 상향 조정시키기 위하여 많은 노력을 투입하는 것으로 알려져 있다. 한편 재무보고에 있어 보수주의는 이익의 질을 향상 시키는 오랜 관습으로 인식되어 왔으며(Watts, 2003), 손실을 이익보다 더 적시에 인식함으로써 보다 신뢰할 수 있는 이익 정보 의 제공을 돕는 역할을 하는 것으로 알려져 있다. 보수주의적 재무보고는 주주들에게 배분될 수 있는 이익잉여금을 낮게 보고 하도록 유도하기 때문에 기업들은 보다 많은 실제 이익을 기업에 유보할 수 있고 결과적으로 이는 채무 불이행 위험(default risk)을 낮추는 역할을 할 수 있다. 따라서 신용평가기관이 만약 기업의 보수주의적 재무보고를 인지한다면 높은 신용등급을 부여할 가능성이 높다. 본 연구는 2002년부터 2013년까지 국내 유가증권 상장기업 중 회사채를 발행한 기업들을 대상으로 보수주의가 신용등급에 미치는 영향을 분석하였다. 구체적으로, Basu(1997)와 Ball and Shivakumar(2005)의 조건부 보수주의 모형(conditional conservatism model)을 이용하여 신용등급 및 신 용등급 변화와 보수주의 수준을 관찰하였다. 연구결과를 요약하면 다음과 같다. 먼저 기업의 투자등급에 속하는 신 용등급을 가진 기업들이 투기등급을 가진 기업들보다 더 보수적이라는 증거는 찾지를 못했다. 추가분석의 민감도 분석에서도 전반적으로 일관적인 결과가 관찰되었다. 둘째, 투자등급에 속하는 기업들의 신용등급이 상향조정된 경 우 보수주의 수준이 높은 것으로 나타났다. 셋째, 표본을 신용등급 상향조정 그룹, 하향조정 그룹, 변화가 없는 그룹 으로 구분하여 분석한 결과에서는 신용등급이 상향조정된 기업들이 하향조정 혹은 변화가 없는 기업에 비해서 보수 주의 수준이 유의적으로 더 높은 것으로 나타났다. 본 연구의 결과는 보수주의의 수준이 기업의 신용등급을 예측하 는데 추가적인 정보를 제공하는 지표로써 활용될 수 있다는 것을 발견했다는 점에서 의미가 있다.
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The topic on “conservatism” or “prudence” is interesting in the accounting literature following the removal of the terms from the Conceptual Framework for the Financial Statement of 2010 and its subsequent re-instatement into the Exposure Draft Conceptual Framework of 2015. The Exposure Draft Conceptual Framework 2015 states that conservatism or prudence is important for achieving neutrality. It is an aspect that makes financial statements useful to investors (IASB, 2015). Conservatism and financial statement verifiability are important characteristics of the generally accepted accounting principles (GAAP) (Kothari et al., 2010; Francis, Hasan, & Wu, 2013). Prior literature suggests that shareholders have greater preference for conservative accounting practices as they reduce litigation risks and mitigate agency problems (Guay & Verrecchia, 2007; LaFond & Watts, 2008; Ball, Jayaraman, & Shivakumar, 2012). Furthermore, conservative reports are found to influence managers’ decisions in issuing earnings forecasts (Hui, Matsunaga, & Morse, 2009; Li, 2007). Such evidence are consistent with the suggestion that mandatory financial reports are used to confirm the credibility of voluntarily disclosed information (Ball, 2001). In addition, conditional conservatism serves as a measure of quality for mandatory financial reports. It also plays a complementary role in voluntary management forecast disclosures (Hui et al., 2009). However, the topic on how conditional conservatism influences the reactions of equity investors towards earnings forecasts made by managers has not been empirically investigated.
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This study suggests several implications to researchers, investors and regulators on state- controlled firms and capital markets. The findings add to the literature on agency conflicts in firms with concentrated ownership (Claessens et al., 2000). The conservatism demanded from equity investors can serve as a means to contain management’s opportunistic behavior in state- controlled firms. In the evaluation of state-controlled firms, especially those with low or zero levels of debt, attention should be paid to how timely accounting income responds to bad news. Institutional reforms in the capital markets should encourage the active participation of investors, the demand for conditional conservatism from equity investors and the protection of the interest of minority shareholders. Also as agency cost control mechanisms are costly (Easterbrook 1984), the corporate governance mechanism at the firm level can be designed to take into account the possible substituting effects between agency control mechanisms. For example, recently the Chinese equity market regulator encouraged listed firms to pay “reasonable” levels of dividends and stated that they would take tough measures against firms that do not pay cash dividends in
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Ball & Shivakumar divided the principle of conservatism into conditional conservatism and unconditional conservatism . Non-conditional conservat- ism is also known as ex ante conservatism and balance sheet conservatism. This conservative approach means that accounting methods are generally determined before the news arises and will not change due to changes in the operating envi- ronment. It was confirmed when assets and liabilities were formed, such as the use of the historical cost method, accelerated depreciation of fixed assets, and the use of expendable support for R & D support. Conditional conservatism, also known as post-event conservatism or earnings conservatism, is an accounting treatment that responds to news when it appears, specifically to identify good news (asset gains) more stringent versus bad news (loss of assets). It also means that in the face of a bad business environment, the book value of assets will be impaired, but in a good business environment, asset impairment will not be transferred. Now academic research on non-conditional conservatism is less, and research on conditional conservatism is more, mainly because non-conditional conservatism is reflected in stock information, generally defined by accounting standards, and rule-oriented accounting standards will, to a certain extent, re- duce the usefulness of accounting information and thus mislead decision makers who use accounting information to be judged; while conditional conservatism shows more of incremental information, which depends on management’s judgment, which is a principle-oriented accounting principle, may cause rele- vant stakeholders to respond and cause changes in their behavior. It can also improve the validity of accounting information and has positive significance for corporate governance.
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the agency conflict between shareholders and creditors. The amount of agency cost indicates the level of information asymmetry that is trying to be mitigated by the company. The greater (the smaller) agency cost, the greater (the smaller) the risk and return expected by capital providers. The greater (the smaller) the risk and expected return, the greater (the smaller) the cost of external capital to be paid by the company. Cost of external capital which is quite expensive (cheap) difficults (facilitates) the company to obtain additional funding from external sources when investing. As a result, the amount of investment made by the company is very dependent (not dependent) on the amount of internal funds, as indicated by higher (lower) investment-cash flow sensitivity (Imhof, 2014). This research also argues that the level of investment-cashflow sensitivity for companies with higher agency cost is greater than companies with lower agency cost. Finally, in addition to its ability to reduce the cost of external capital, higher conditional conservatism is also able to improve the quality of corporate governance (Lafond and Watts, 2008; Imhof, 2014). Based on the explanation, it can be said that the effect of conditional conservatism in lowering the investment-cash flow sensitivity is stronger in companies that also have problems in governance (high agency cost firm) and weaker in companies that already have a good governance mechanism (low agency cost firm).
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Following prior studies, we classify accounting conservatism into conditional and unconditional conservatism (Basu 1997; Watts 2003; Beaver and Ryan 2005). Under conditional conservatism, economic losses that are expected to occur in the future are reflected in current earnings in a timely manner. However, under unconditional conservatism, losses are recognized regardless of certain economic events. We expect that both conditional and unconditional conservatism have significantly negative relations with over-investment because both timely recognition of losses resulting from certain economic events and understatement of net assets due to predetermined aspects of the accounting process are likely to deter managers from investing in unprofitable projects, thereby aiding in the monitoring of their investment decisions. Based on this reasoning, we predict that accounting conservatism will complement other governance mechanisms to control managers’ opportunistic investment decision-making and consequently reduce over-investment.
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Theoretical implications of this thesis are the negative relationship between conditional conservatism and price value relevance. This reconfirms the findings of Kousenidis, Ladas and Negakis (2009) and Maganaris (2011). On one hand, US GAAP compliance shows higher levels of conservative accounting in comparison with IFRS compliance, reconfirming results of Pham (2009). On the other hand, IFRS complying firms show higher price value relevance in comparison with US GAAP compliance. Other theoretical implications are related to accrual intensity in relation to conservatism and value relevance. Existing literature showed that accrual intensity is related to the relation between conservatism and value relevance. This thesis implies that this does not appears to be true. Instead, there appears to be an independent relation between accrual intensity and conservatism and accrual intensity and value relevance. Furthermore, practical implications are related to the convergence negotiations of the FASB and IASB to establish a uniform accounting language for the TTIP. Concerning the negotiations, this paper can be used to identify differences in European and US accounting behavior. There are several limitations regarding this bachelor thesis. First, the sample consists of 985 firms which is, compared to other studies, rather small. A small sample size limits the generalizability of the result with respect to the EU and US. Second, only listed firms are analyzed in both the US and EU. Analyzing non-listed firms might lead to different results. Third, this thesis only looks at conditional conservatism and its relation to price value relevance. It is therefore impossible to conclude that conditional conservatism is causing declining value relevance. The only concluding remark that can be made regarding the relation is that conditional conservatism is part of the explanation of price value relevance. Lastly, conditional conservatism is only part of conservatism, hence this paper did not focus on unconditional conservatism. This thesis also only focuses on price value relevance and not on other types such as earnings value relevance or value relevance under perfect foresight. Studying these different forms of value relevance and conservatism might offer a more complete image.
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Phylogenetic niche conservatism (PNC) is the tendency of species to retain characteristics of their fundamental niche over time . Recent work has highlighted the sig- nificance of PNC in understanding many biological patterns and processes [1– 3]. For example, niche conser- vatism may explain species richness patterns at various scales and could reveal the role of ecology in speciation [1,2,4– 6]. Most importantly, if high niche conservatism means that species will find it harder to evolve in the future, PNC may have consequences for conservation in the face of global change: all other things being equal, species with highly conserved niches may struggle to adapt to changing environments and could therefore face heightened risk of extinction under projected global change scenarios [3,7]. Species with more labile niches, on the other hand, may more readily cope with a locally changing climate and colonize or invade new areas , decreasing their risk of extinction.
Garnett and I do, I think, agree more than we disagree on the transformative effect of Thatcherism, both on the Conservative Party and beyond. Indeed, as both reviewers in this symposium identified, this is a central thesis of the book. My argument however, is that the ideological legacy of Thatcherism has been to restrict the parameters within which British conservatism can seek to renew itself, with damaging
opted the Liberal Democrats in the Conservative agenda, created a dividing line with the opposition, and provided an over-arching framework within which many other policy debates could be framed (Hayton, 2014). However, by exposing the Conservatives’ attachment to neo-liberal political economy to full view it brought into question the sincerity of their commitment to modernisation and liberal conservatism. With deficit reduction through fiscal retrenchment established as the number one priority for the Coalition, perhaps inevitably the language adopted by Conservative politicians become rather more hard-edged than during the earlier years of the Cameron leadership, emphasising the ‘tough choices’ the government had to make . On welfare policy for instance, which had been
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Accounting conservatism is an important indicator to measure the quality of enterprise’s accounting information. This paper adopts accounting conservatism as the interpreted variable, reflecting whether the family business has short-sighted tendency of earning manipulation under the successor’s governance. With re- gard to the measurement of accounting conservatism, Basu  defines it by using asymmetric timeliness, that is, the asymmetric recognition of “good news” and “bad news” by accounting profit, asymmetric timeliness means that it is more timely to confirm bad news than to confirm good news, and accounting losses are more relevant with stock returns than profits; Givoly and Hayn  propose two measurements of accounting conservatism, one is the time of earn- ings sequence skewness (con_skewness), which believes that a sound accounting policy requires timely and complete confirmation of bad news, delays confirm- ing good news, which leads to a negative bias in the earning distribution; the other is cumulative non-operating accruals divided by cumulative total assets (con_accrual). This paper mainly uses the company’s annual indicator C-Score  to measure the degree of accounting conservatism of enterprises. The model for C-Score measurement is as follows:
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We include the investment cycle (Inv_Cyc), bid-ask spread (BASprd), return volatility (Vol), and return on asset (ROA) as control variables. Khan and Watts (2009) show that firm-specific uncertainty such as the investment cycle and return volatility are positively related to conservatism. And these relationships are well captured when using C_Score as a dependent variable from Panel regression. They argue that a long investment cycle increases the uncertainty of a firm since it increases the difficulty in estimating future cash flow which in turn might lead to larger losses. Thus, the agency problem arises and lenders, as well as stockholders, demand that those firms be more conservative. Note that Inv_Cyc is a decreasing measure of the length of the investment cycle defined as the depreciation expense deflated by lagged assets. Therefore, the positive association between conservatism and the length of the investment cycle would result in a negative sign for the coefficient of Inv_Cyc when a regression model uses C_Score as dependent variable.
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Table 1 (Panel A) presents descriptive statistics for the price returns of the two cryptocurrencies. The average price returns are positive for both Bitcoin and Ether and equal to 0.4373% and 0.6889% with a standard deviation of 3.9092% and 8.5037%, respectively. Furthermore, the price returns of both cryptocurrencies are leptokurtic as a result of significant excess kurtosis - with Bitcoin exhibiting smaller kurtosis than Ether - and negatively skewed suggesting that it is more likely to observe large negative returns. Moreover, the Jarque-Bera test results confirm the departure from normality, while the test results for conditional heteroskedasticity suggest that ARCH effects are present in the price returns of both cryptocurrencies. We can thus proceed with bivariate GARCH modelling to model the conditional variances and covariance of the price returns of Bitcoin and Ether. Furthermore, the results of both unit root tests (Table 1, Panel B) suggest that stationarity is ensured. Consequently, the Bitcoin and Ether price returns are appropriate for further analysis.
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This study examines the impact of accounting conservatism as one of the qualitative characteristics of accounting information on the performance of companies listed on the Stock Exchange of Tehran. For this purpose, a total of 125 companies were selected in 2009 to 2014 when yields their data were analyzed using multivariate regression model and by the observational data using fixed effects. The results of research hypothesis testing showed that conservatism and investment efficiency variables and future investment of firms studied had significant impacts.
The contingent possibility is a vital volume in extensive shift of areas, comprehensive of characterization, determination hypothesis, forecast, diagnostics, and other comparable circumstances. That is because of the reality one by and large makes the order, choice, forecast, and so forth in light of some confirmation. In this manner, what one needs to grasp is the likelihood of the final product given the confirmation. In the case of arrangement, the verification is the estimations of the estimations, or the highlights on which the grouping is to be based. The practical results are the conceivable classes. The problem is that this conditional probability is exceptionally difficult to appraise from tests straightforwardly. This is on the grounds that there are for the most part a substantial scope of qualities which the components can take. Along these lines there would be a gigantic number of restrictive conceivable outcomes to assess. To get round this, Bayes administer is utilized to compose this in expressions of the conditional probability of getting the verification given the characterization. The probability of the evidence adapted on the final product can now and again be resolved from first standards, and is routinely parcels simpler to evaluate. There are as often as possible exclusively a modest bunch of conceivable guidelines or results. For a given grouping, one tries to quantify the likelihood of getting stand-out proof or examples. A mannequin is utilized to insert to concealed examples. This gives a gauge of the contingent probability of the confirmation given the arrangement. Utilizing Bayes manage, we utilize this to get what is wanted, the contingent likelihood of the arrangement given the confirmation.
Fig.1 reports the total average conditional punishment schedule in our experiment. 3 The total average conditional punishment decisions to a non-cooperator are significantly increasing in the amount of the other members ’ average punishment to the non-cooperator. This pattern cannot be rationalized if we assume that a decision-maker is only concerned about the income inequality between her and the punished (See predictions based on inequality-averse models in Section 2). This instead suggests that (a) she does not care how small a payoff the non-cooperator obtains but (b) she does care about the income inequality between her and other punishers.
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CL , but even in the constrained case, the effects from section 2 occur. CL and parsing accuracy are both higher using the CL ∗ estimates. He also describes a conditional shift-reduce parsing model, but notes that it underperforms the simpler joint formulation. We take these two results not as contradictory, but as confirmation that conditional estimation, though of- ten slow, generally improves accuracy, while condi- tional model structures must be used with caution. The conditional shift-reduce parsing model he de- scribes can be expected to exhibit the same type of competing-variable explaining-away issues that oc- cur in MEMM tagging. As an extreme example, if all
came over him. There was no ‘out’ in his identity, no escape from being alienated. His suffering, in the long run, only helped better the lives of those who were most afraid of him. The Samsas had only kept the other around in order to keep up appearances and make themselves better people. Such is the ideology of identity today in which one clings to their status and position in society instead of trying to totally abolish identity and class divisions. Conservatism forms this death drive as one is left to take an immense pleasure in one’s own destruction and humiliation. If we feel any sort of sympathy for Gregor, it is because he did not notice that the way to
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have different incentives regarding accounting practices, in particular regarding accounting conservatism. Board of directors may use conservative accounting to reduce agency costs (Watts, 2003; Ahmed and Duellman, 2007). Outside directors will improve corporate governance control and the effectiveness of the board of directors (Fama and Jensen, 1983). Therefore, we expect them to encourage more conservative attitude in financial reporting (Beekes et al., 2004; Bushman et al., 2004; Ahmed and Duellman, 2007). By contrast, inside directors may harm shareholders by making the board less effective. In such situation, management may compromise the quality of financial reporting by requiring less conservative practices. The empirical evidences of Beekes et al. (2004) support this contention in UK boards and show that firms with a relatively high proportion of outsiders tend to be more conservative. Thus, a board with a relatively high proportion of outsiders is more likely to effectively monitor the management team and force them to recognize bad news in a timelier fashion than good news in financial reporting. Previous studies on board composition such as that of Ahmed and Duellman (2007) argue that boards dominated by insiders have a lower asymmetric timeliness coefficient than boards with lower levels of insiders. Hence, they suggest that boards dominated by insiders are likely to provide managers with more incentives to choose aggressive (less conservative) accounting methods. Meanwhile, Bushman et al., (2004) and Ahmed and Henry (2012) find no relation between board independence and earnings timeliness. Other studies show that the presence of outside directors reduces the occurrences of financial statement fraud (Beasley, 1996; Dechow et al. 1996) and earnings management (Klein, 2002; Davidson et al., 2005). Beekes et al. (2004), among others, maintain that as the number of independent directors increases on a board, the firm’s monitoring capability increases and it is therefore expected to insist on greater accounting conservatism. The preceding discussion leads to our next hypothesis:
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