Conservative
Accounting Conservatism in Fraud Firms: An Empirical Investigation*
Keith Jones Assistant Professor George Mason University kjonesm@gmu.edu
Gopal Krishnan Professor Lehigh University gkrishn1@gmu.edu
Mikhail Pevzner** Assistant Professor George Mason University mpevzner@gmu.edu
Partha Sengupta Associate Professor George Mason University psengupt@gmu.edu
We examine whether Ball and Shivakumar (2006) and Basu (1997) models of conservatism identify fraud firms as anti-conservative. We show that both models do so to some extent, but Ball and Shivakumar model results are stronger. We further show that these results are driven by firms committing largest frauds as a percentage of firms’ assets. Our results are important to academics who use conservatism measures in their studies, and to policy makers who seek to assess usefulness of conservatism to capital markets.
**Corresponding Author, 4400 University Drive, MS5F4, Fairfax, VA 22030
Accounting Conservatism in Fraud Firms: An Empirical Investigation*
We examine whether Ball and Shivakumar (2006) and Basu (1997) models of conservatism identify fraud firms as anti-conservative. We show that both models do so to some extent, but Ball and Shivakumar model results are stronger. We further show that these results are driven by firms committing largest frauds as a percentage of firms’ assets. Our results are important to academics who use conservatism measures in their studies, and to policy makers who seek to assess usefulness of conservatism to capital markets.
Key Words: Conservatism, Basu Model, Ball and Shivakumar Model, Fraud
Data Availability: All data employed in this study are commercially available from sources described in the text.
1. Introduction In this study, we examine whether 1) two popular conditional conservatism models, namely the Basu (1997) and the Ball and Shivakumar (2006) models correctly identify a lack of conservatism among firms known to have committed financial
Keith Jones Assistant Professor George Mason University kjonesm@gmu.edu
Gopal Krishnan Professor Lehigh University gkrishn1@gmu.edu
Mikhail Pevzner** Assistant Professor George Mason University mpevzner@gmu.edu
Partha Sengupta Associate Professor George Mason University psengupt@gmu.edu
We examine whether Ball and Shivakumar (2006) and Basu (1997) models of conservatism identify fraud firms as anti-conservative. We show that both models do so to some extent, but Ball and Shivakumar model results are stronger. We further show that these results are driven by firms committing largest frauds as a percentage of firms’ assets. Our results are important to academics who use conservatism measures in their studies, and to policy makers who seek to assess usefulness of conservatism to capital markets.
**Corresponding Author, 4400 University Drive, MS5F4, Fairfax, VA 22030
Accounting Conservatism in Fraud Firms: An Empirical Investigation*
We examine whether Ball and Shivakumar (2006) and Basu (1997) models of conservatism identify fraud firms as anti-conservative. We show that both models do so to some extent, but Ball and Shivakumar model results are stronger. We further show that these results are driven by firms committing largest frauds as a percentage of firms’ assets. Our results are important to academics who use conservatism measures in their studies, and to policy makers who seek to assess usefulness of conservatism to capital markets.
Key Words: Conservatism, Basu Model, Ball and Shivakumar Model, Fraud
Data Availability: All data employed in this study are commercially available from sources described in the text.
1. Introduction In this study, we examine whether 1) two popular conditional conservatism models, namely the Basu (1997) and the Ball and Shivakumar (2006) models correctly identify a lack of conservatism among firms known to have committed financial