Document Type


Publication Date

Winter 12-27-2021


Accounting conservatism is a fundamental qualitative characteristic of financial statements. For centuries, it has had a significant impact on accounting practices. The goal of this study is to investigate the attributes of firms and countries, as well as their relative importance in influencing the level of unconditional conservatism. The data for Hierarchical Linear Modeling was collected from a sample of 5470 publicly traded firms from 55 countries between 2017 and 2019. The results reveal that country differences explain approximately 31 percent of the variance in the level of unconditional conservatism. Thus, firm attributes are superior in explaining cross-country variance in the level of accounting conservatism. Regarding country attributes, the results suggest that firms located in well-governed countries exhibit much greater levels of unconditional conservatism in their financial reporting techniques. Furthermore, firms residing in countries with higher socioeconomic conditions recognize negative news in financial reports quicker than firms located in countries with lower socioeconomic conditions. Moreover, negative events may not be released instantaneously in economically free countries. Regarding firm attributes, both accounting regulations and tax growth influence the level of unconditional conservatism. The findings may have significant implications for regulators, standards-setters, analysts, and corporate governance. The findings of this study contribute to a better understanding of the effects of financial and non-financial factors in explaining accounting practices. Understanding the motivation that influences earnings quality will enable businesses to make more sound investment decisions.

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