Abstract
<p>The objective of this study is to measure the level of conservatism in accounting policies and its effect on disclosure quality in commercial banks in Jordan. The research was implemented on the Jordanian commercial banks listed at Amman Stock Exchange from the period 2005 to 2014. The study population consists (14) banks used as a sample. The total data observations for the last 10 years were (130), (29) of which were dismissed either because missing observation or outlier, leaving a final study sample of (101) observations. The research used the book value-to-market value ratio and the accruals-to-profit (before extraordinary events and discontinued operations) ratio as proxies for conservatism. While the level of compliance with disclosure instructions was used as a proxy for disclosure quality. The study used two hypotheses to achieve its goals. The results showed that there is a good level of conservatism in accounting policies used by Jordanian commercial banks, which is one of the banking sector characteristics. The study showed a significant effect of accounting conservatism measured by using the accruals-to-profit ratio on the disclosure quality, but not when using the book value-to-market value ratio. This difference in results could be referred to the presence of pure accounting factors in the accruals-to-profit ratio, but there are additional environmental factors in the book value-to-market value ratio.</p>
Highlights
The accounting conservatism term means that the minimum values of the assets and revenues shall be as possible acknowledged, as well as the maximum values of expenses and financial commitments
This study is based on the measurement of the level of conservatism in accounting policies on two measures which were used in different previous studies, namely: scale depends on the market value, and the measure of earnings (Total Accruals / Profits Before Extra-ordinary Items and Discontinued Operations-TACC)
The research has developed a group of hypotheses that aim to achieve the objectives of the study, and has tested these hypotheses, and come up with the following results: There is a good level of conservatism in accounting policies, based on the fact that the Book-to-Market Ratio Market Value (BTM) ratio is less than 1 in most of the study period, and this outcome agrees with (Krishnan & Visvanathan, 2007) and (Ahmed & Duellman, 2007) and (Lara, Osma, & Penalva, 2007) and (Ahmed & Duellman, 2005) and (Beaver & Ryan, 2000)
Summary
The accounting conservatism term means that the minimum values of the assets and revenues shall be as possible acknowledged, as well as the maximum values of expenses and financial commitments. The recognition of expenses should be accelerated, while the recognition of revenues should be postponed, it is preferred to evaluate the assets as minimum, and calculating the income in a way that gives the minimum value among other alternatives ways (Xie, Zheng, & Lau, 2012). As an example of the accounting conservatism, recognition of the research and development expenses as private expenses during the period of spending it, and in comparison with its capitalization, and spread these expenses over many years, in addition to use the accelerating consuming or the minimum evaluation to the economic age of an asset, making higher allowances for doubtful debts and for warranty liabilities (Penman & Zhang, 2002). In addition to the fact that this can be the way for the management to deliver the information to the current and future investors about the past events and about the future growth opportunities, the accurate disclosure in the right time will help in proper securities jms.ccsenet.org
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