Accounting conservatism, profitability, and firm value: Evidence from Philippine publicly listed firms

• Main Author: Mendoza, Tereynz Paul D.
• Format: text
• Published: Animo Repository 2020
• Subjects: Accounting; Corporations—Philippines—Accounting
• Online Access: https://animorepository.dlsu.edu.ph/faculty_research/10897
• Institution: De La Salle University

This study investigates the conservative accounting practices of publicly listed firms in the Philippines from 2005 to 2015, and whether higher levels of conservatism positively affects the firms’ future profitability and firm value. Using two different measures of accounting conservatism, namely CScore and Book-to-Market, this paper finds mixed results regarding the relationship between accounting conservatism and future profitability and firm value. In the case of future profitability, using CScore yields a positive relationship between accounting conservatism and profitability, while Book-to-Market generates the opposite. In the case of future firm value, we find that the relationship between accounting conservatism and firm value is negative, which either implies that conservatism does destroy firm value, or that the negative effect is just a product of the deliberate understatement of net assets. This paper calls for a continuation of studies regarding the benefits accounting conservatism as some qualitative characteristics are indispensable in corporate governance.