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An International Meeting of American Accounting
Association
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On The Degree of Accounting Conservatism |
Pengguo Wang
Imperial College
David Ashton
Bristol University
Abstract: Accounting conservatism has important effects on the valuation weights to be attached to book value and the earnings capitalization factor in accounting based models of valuation. This paper defines four different levels of accounting conservatism with respect to book value: high degree, moderate degree, low degree and negative degree of accounting conservatism and discusses how different degree of accounting conservatism affects such valuation parameters. It articulates a general equity valuation model and abnormal earnings informational dynamics in an arbitrage free capital market to establish a basis for conducting empirical research.