The effect of differential accounting conservatism on the “over-valuation” of high-tech firms relative to low-tech firms |
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Authors: | Sung S Kwon Qin Jennifer Yin Jongsoo Han |
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Institution: | (1) School of Administrative Studies, York University, Toronto, Ontario, Canada, M3J 1P3;(2) Department of Accounting, University of Texas at San Antonio, San Antonio, TX, 78249-0632;(3) School of Business, Rutgers University–Camden, Camden, NJ, 08102 |
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Abstract: | This paper examines systematic differences in the level of accounting conservatism between high-tech and low-tech firms. Relying
on the recent development in theoretical models and empirical measures of conservatism, we investigate conservative accounting
practices and earnings management behavior in high-tech and low-tech firms. The results based on comparisons of cumulative
nonoperating accruals, regression coefficients from the income timeliness models in Basu (1997), the distribution of earnings,
and discretionary accruals between the two groups are consistent with a higher level of accounting conservatism in high-tech
firms vis-à-vis low-tech firms. Additional analyses show that the effect of conservatism cannot be used as a defense for the
over-valuation of high-tech firms. |
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Keywords: | High-tech Low-tech Conservatism Earnings management |
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