Conservatism and Value Relevance: an empirical study of Indonesian Companies

Simposium Nasiona Akuntansi 9 Padang

Conservatism and Value Relevance: an empirical study of Indonesian Companies

B. Linggar Yekti Nugraheni1
(Unika Soegijapranata Semarang)
Adimas Hartanto2
(Unika Soegijapranata Semarang)

The purpose of this study is to measure the conservatism and provide evidence about its value relevance. Feltham-Ohlson Model is applied to investigate the conservatism. We use the secondary data of companies listed in JSX 1999-2003. We find that conservatism has no value relevance, there is an association between ERC and earning pesistence and coefficient of cash flow from investing activities is positive in conservative condition. Our research support the implication of FO model that the effect of abnormal operating earning on goodwill increases with operating cash receipt persistence. On the other hand, this research can not provide evidence that there is earnings management in companies that implement conservatism. Furthermore, the interaction between discretionary accruals and bonus plan and debt covenantcould effect company’s value.

Keywords : conservatism, value relevance, Feltham-Ohlson Model, earnings management

Jurnal Akuntansi Lainnya:  Corporate Governance - Powered by Google Search

1 Faculty of Economics Soegijapranata Catholic University, Jl. Pawiyatan Luhur IV-1 Bendan Duwur Semarang 50234, Phone (+6224) 8441555, Faks. (+6224) 8415429 Mobile. +6281 3258 77300, Email: and
2 Graduate from School of Accounting, Faculty of Economics Soegijapranata Catholic University Jl. Pawiyatan Luhur IV-1 Bendan Duwur Semarang 50234, Phone (+6224) 8441555

Simposium Nasiona Akuntansi 9 Padang


Some researches have long struggled with the need to operationalize qualitative properties of financial reporting system such as objectivity, reliability, consistency, comparability and materiality. Some attempts have been made to quantify the attributes of those qualitative properties. With some exception such as Hagerman and Zmijewski (1979, 1981), Satubus (1985) and Leftwich (1995), little attempt has been made over the years to quantify conservatism, despite it being one of the most prominent characteristics of financial accounting. One measure of conservatism comes from the work of Feltham and Ohlson (1995), that is the expected market to book ratio. This ratio has been used to gauge changes in reporting conservatism over time (e.g. Ahmed, Morton and Schaefer (2000), Beaver and Ryan (2000), Givoly and Hayn (2000) and Stober (1996) and coupled with other financial ratio, to measure conservatism across countries (Joos and Lang (1994).


Basu (1997) introduced a number of measures that capture the essence of conservatism principle as reflected in the adage “anticipate no profits but anticipate all losses”. That is, conservatism reporting means that events with an expected unfavourable outcome are recognized promptly in income whereas the recognition of the effects of expected favourable events is deferred. Accordingly, Basu’s measures are based on the speed of response of accounting earnings to bad news relatives to good news.

Download this journal

Tinggalkan Balasan

Situs ini menggunakan Akismet untuk mengurangi spam. Pelajari bagaimana data komentar Anda diproses.