Study on Conditional Conservatism Within Fair Value Measurements Based on Anti-discount Expectations.

Area of Science:

• Accounting
• Financial Reporting
• Emerging Markets

Background:

• China's capital market is growing rapidly, attracting investor and academic interest.
• External users often discount financial statement items measured at fair value levels 2 and 3.
• Listed companies may employ conditional conservatism to mitigate this discounting effect.

Purpose of the Study:

• To empirically investigate the relationship between fair value measurement hierarchy and conditional conservatism in Chinese listed companies.
• To examine factors influencing the adoption of conditional conservatism.

Main Methods:

• Empirical analysis of a selected sample of listed companies.
• Regression analysis to test the association between variables.

Main Results:

• A higher proportion of level 2 and 3 fair value measurements is associated with stronger conditional conservatism.
• Higher cash holdings and audit quality correlate with increased use of level 2 and 3 measurements and stronger conditional conservatism.
• Fewer internal control defects are linked to a higher proportion of level 2 and 3 measurements and stronger conditional conservatism.

Conclusions:

• Findings provide empirical evidence for conditional conservatism strategies in response to fair value accounting expectations.
• Results offer insights for improving accounting standards and regulations for listed companies.