Abstract
This study aims to investigate the impact of conservative accounting on corporate performance indicators of Egyptian firms. A sample of balanced data for the 40 most active non-financial companies was collected in the period 2009-2014 to test hypotheses. Panel regression models were used for data analysis. Givoly & Hayn (2000) indicator is used as a benchmark for measuring accounting conservatism. The corporate performance indicators used in this study are return-on-assets (ROA) and return on equity (ROE) representing accounting performance measures, as well as Tobin’s Q which measures market performance. The results of the research show that accounting conservatism has a significant positive impact on corporate performance indicators. This reflects the positive effect of corporate performance on shareholders that leads to a strong corporate financial position. To the best of our knowledge, no study has been conducted in Egypt as an emerging economy.
Highlights
Accounting conservatism is considered the established financial reporting rules and practices that require prudence by companies to deal with uncertainties and risky conditions (FASB, 1980, IASC, 1989)
A positive significant correlation was shown between performance indicators, (ROA, return on equity (ROE), and Tobins’Q) with accounting conservatism (Coef. = 0.409, -0.287, & 0.264 respectively) at the 1% level
This study aims to examine the impact of accounting conservatism on corporate performance indicators in Egyptian firms
Summary
Accounting conservatism is considered the established financial reporting rules and practices that require prudence by companies to deal with uncertainties and risky conditions (FASB, 1980, IASC, 1989) It restricts the managers' opportunistic behavior to guarantee the shareholders' interests and enhances corporate value. The existing literature indicates that accounting conservatism has a positive impact on a company's economic profit (Sana’a, 2016), contribute to better ethical hazard issues and minimize problems resulting from information asymmetries (García Lara et al 2016) and facilitate in estimating the future cash flows (Ramadan 2015) These impacts are assumed to enhance the firm's value by improving investment decisions (Lambert et al 2007). These impacts are assumed to enhance the firm's value by improving investment decisions (Lambert et al 2007). Watts (2003) argues that the accounting conservatism principle remains critical to improving financial reporting
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