Accounting Conservatism: Evidence from Indian Markets

Abstract

This paper establishes existence of conditional conservatism in accounting practices of Indian corporate. It estimates firm-year measure of accounting conservatism (C-score). This study validates the C-score, asymmetric timeliness measure, and establishes monotonicity of C-scores. The paper also focuses on the study of the empirical properties of C-score and finds positive association of C-score decile ranks with decile wise Leverage and Variability. The C-score decile ranking is negatively associated with Size, Age, Market-to-Book Value ratio, Return on Assets and Non-Operating Accruals. Through this study, the forecasting capability of C-scores is established. C-scores can predict conditional conservatism up to two years ahead. This study is expected to play an important role in furtherance of research in this area in the Indian context.