The effect of conservatism on earnings quality

Abstract EN

This paper examines the effect of accounting conservatism on earnings quality.

The paper assumes that the level of conservatism varies according to several factors.

Thus, the change in each of these factors influences the level of conservatism which in its turn affects earnings quality.

The paper applies the Basu Model (1997) with modification to test the relationship between conservatism and earnings quality.

The model is applied on sample of listed firm in the Amman Stock Exchange (ASE) from the period 2001 to 2012.

Results show that high change in investment levels, high percentage of institutional investors and market classification increases the level of conservatism and consequently decreases the quality of earnings.

These results indicate that earnings quality changes from one period to another and varies between firms according to changes in conservatism levels.