محافظه‌کاری حسابداری در حالت عدم تقارن اطلاعاتی میان سهامداران اکثریت و اقلیت

Following LaFond and Watts (2008), we examine the relation between information asymmetry (as measured by PIN, probability of information-based trading) and accounting conservatism but focus on a country – Taiwan – whose institutional background is different from that of the United States. Due to the disparate degree of conservatism across the world, the conclusions of LaFond & Watts (2008) might not be universally applicable. Our findings support, in general, the applicability of their conclusion to a Taiwan data set. We find, however, that the effect of PIN appears weaker when auditor tenure is taken into account, thus supplementing their conclusions.

The recent Conceptual Framework for Financial Reporting project, a joint project of the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB), concludes that conservatism (or prudence) should be excluded from the qualitative characteristics of accounting information. This conclusion motivates us to examine the informational role of conservatism (detailed in the literature review section), 1 the demand for and measurement of which have long been examined and explained by researchers (e.g., Basu, 1997 and Roychowdhury and Watts, 2007). If carried out, this exclusion will affect the development of future accounting standards. Therefore, this study examines the impact of conditional conservatism on shareholders, focusing mainly on private information and auditor tenure. Two important features of conservative accounting are asymmetric timeliness in recognition of accounting gains versus losses and systematic understatement of net assets ( Givoly et al., 2007 and Roychowdhury and Watts, 2007), features that result from asymmetries in information and loss functions among the contracting parties and the inability of the uninformed to verify the information provided by the informed ( Watts, 2003a and Watts, 2003b). There is a need for conservatism (i.e., prudence) in financial accounting and reporting because, in the face of the uncertainty of business and economic activities, prudence demands a higher degree of verification for the establishment of recognized assets than of liabilities. Accounting convention should encourage such prudence. LaFond and Watts (2008), using a U.S. data set, find evidence that information asymmetry is positively related to accounting conservatism and, more importantly, that changes in information asymmetry affect conservatism rather than conservatism driving information asymmetry. They conclude that the roles of accounting conservatism not only relate to debt and compensation contracts, but also cover equity investors. However, the disparate degree of accounting conservatism around the world calls for an investigation into the role of conservatism in different countries. Three reasons justify why this study follows the method used by LaFond and Watts (2008) and why it uses Taiwanese data to reexamine how information asymmetry is related to conservative accounting. First, it is well known that the degree of accounting conservatism differs across countries and according to preparers' incentives (Ball et al., 2000, Ball et al., 2003 and Ball and Shivakumar, 2005). Differences in institutional settings may invalidate the conclusions of LaFond and Watts (2008), which are based only on U.S. data, so research like the present study is needed before their conclusions can be considered generally valid. Thus, it is worth investigating the relation between information asymmetry and accounting conservatism beyond the U.S. data. We will discuss how specific institutional differences may affect the information role of accounting conservatism found in LaFond and Watts (2008) in the next section. Second, the size of the Taiwan stock market, which was the world's twentieth largest during our research period, makes it a significant example of a code-law regime within which to test the information role of conservatism.2 Third, this study further investigates the role of auditor tenure. Note that audit-firm tenure (e.g., Gul et al., 2009, Myers et al., 2003 and Stanley and DeZoort, 2007) has been commonly used in auditing research. However, to the best of our knowledge, no studies examine how auditor tenure affects the relation between information asymmetry and accounting conservatism discussed above. Thus, we further incorporate this variable into our analysis. Our findings reveal that auditor tenure affects the relation between information asymmetry and accounting conservatism. Specifically, for a case of good news the relation is weaker when the auditor tenure of the company is short; for a case of bad news, however, the relation is weaker when the auditor tenure of the company is long. Our empirical evidence suggests that conservatism mitigates information asymmetry. Specifically, the level of accounting conservatism is positively related to the level of information asymmetry, and information asymmetry in the current period will further drive an increase of conservatism in the next period. Thus, our findings question the current proposal of IASB and FASB that such conservatism should be excluded from the qualitative characteristics of accounting information. We are concerned that more serious academic input is needed before a final decision on such an exclusion of conservatism can be made. Such a decision should take into account the findings of this paper, which conclude that the necessity for accounting conservatism is greater for firms whose auditors have longer tenure. Note that this study does not suggest that the standard setters, either FASB or IASB, will be influenced by evidence that conservatism is useful.3 Instead, it suggests that if conservatism is excluded from the qualitative characteristics of accounting information, shareholders should keep a more careful eye on the issue of information asymmetry. Our findings further suggest that, especially in cases of longer auditor tenure, conservatism should be encouraged, not excluded. Even if standard setters such as the FASB and IASB continue to ignore relevant research, shareholders can still keep our results in mind: at the very least, this paper suggests that if conservatism is excluded from the qualitative characteristics of accounting information, shareholders should closely monitor information asymmetry. The remainder of this paper is organized as follows. Section 2 provides a review of relevant literature on conservative accounting and information asymmetry. Section 3 describes the research design. Section 4 presents the descriptive statistics and reports the empirical findings. Our summary and conclusions are given in Section 5.

LaFond and Watts (2008) explain and find evidence that information asymmetry between firm insiders and outside equity investors generates conservatism in financial statements. They conclude that accounting conservatism increases firm value. However, the disparate degree of accounting conservatism around the world calls for an investigation into the role of conservatism in different countries and into the factors that affect this role. Therefore, by using the LaFond and Watts (2008) method on Taiwanese data, this study investigates the information role of conservatism and refines the conclusions of LaFond and Watts by examining whether auditor tenure affects the information role of conservatism. We find evidence that the information role of conservatism is also supported in Taiwan, but only in cases of bad news. In addition, our evidence reveals that the effect of PIN – which according to LaFond and Watts (2008) causes good (bad) news to be incorporated into earnings later (earlier) – is actually weaker in cases of good news when tenure is short as well as in cases of bad news when tenure is long, at least according to Taiwanese data. This study is useful because the differences in institutional settings may invalidate the conclusions of LaFond and Watts (2008), which are based only on U.S. data. Using a Taiwanese data set, this study investigates the cause-and-effect relation between information asymmetry and accounting conservatism. Our empirical evidence suggests that conservatism mitigates information asymmetries. Specifically, we find evidence that accounting conservatism is positively related to the level of and changes in information asymmetry. In sum, conservatism, one of the most prominent characteristics of financial accounting, is actually an efficient way to address the moral hazard problem arising from the asymmetric information among interested stakeholders. In this regard, we suggest that the IASB/FASB Conceptual Framework Project should examine carefully the economic role of conservatism further before making their final decision. One immediate concern is this: if conservatism is no longer structured into the financial reporting standards, how will the IASB and FASB technically deal with the uncertainty that a company faces when preparing its accounts? The advantage of conservatism as a useful earning attribute for creditors and outside equity holders will vanish after the removal of accounting conservatism in financial statements. However, the economic demand for conservatism (e.g., Watts, 2003a and Watts, 2003b) still exists in all stakeholders. Although we hesitate to conclude that the IASB's and FASB's statement was hastily made without serious academic input, we believe that the IASB and FASB have not formally taken into consideration how to compensate lenders and borrowers (e.g., Zhang, 2008) as well as stockholders (e.g., LaFond & Watts, 2008) for the lost benefits of conservatism. Thus, our findings are inconsistent with the current proposal of IASB and FASB that such conservatism should be excluded from the qualitative characteristics of accounting information. Indeed, it is our opinion that a final decision on such an exclusion should be made only after serious consideration of academic input. Even if standard setters such as the FASB and IASB continue to ignore relevant research, shareholders can still keep our results in mind: at the very least, this paper suggests that if conservatism is excluded from the qualitative characteristics of accounting information, shareholders should closely monitor information asymmetry.