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Balance sheet versus earnings conservatism in Europe

2004

In this study we extend prior research on the international analysis of accounting conservatism (Joos and Lang, 1994; Ball et al., 2000; Giner and Rees, 2001), by examining the level of accounting conservatism across eight European countries (United Kingdom, Germany, France, Switzerland, the Netherlands, Italy, Spain and Belgium), and assessing the statistical significance of the differences among them. The definitions of conservatism that we use are, on the one hand, the Feltham and Ohlson (1995) definition, which implies a persistent understatement of book value of shareholders' equity (balance sheet conservatism). On the other hand, we use the one proposed by Basu (1997), that is, a time…