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RAF 5,2

Timeliness and conservatism

Changes over time in the properties of accounting income in France


Yuan Ding and Herve Stolowy Department of Accounting and Management Control, HEC School of Management (Groupe HEC), Jouy-en-Josas, Yvelines, France


Purpose – This paper aims to investigate the changes in the properties of accounting income published by French listed companies during the 1990s. It also analyzes the impact of certain corporate characteristics such as size, international financing, and audit firm, on such changes. Design/methodology/approach – Multivariate regression is used. Findings – In French companies, good news has a delayed impact on earnings, as accountants only allow the effect of such news to be recognized gradually in the earnings measure. Conversely, bad news is reflected rapidly in earnings. The results confirm a general upward trend in the degree of conservatism of accounting earnings over the period as a whole. However, except for firm size, none of the corporate characteristics examined can predict a company’s accounting earnings properties. Research limitations/implications – In future studies, it will be interesting to develop and test other possible corporate and/or institutional factors relating to accounting earnings properties. Practical implications – The paper provides an insight analysis on the evolution of institutional environment in France and its impact on accounting. Originality/value – First study on properties of accounting income in France.

Keywords Multivariate analysis, Accounting, Earnings, Corporate finances, France Paper type Research paper

1. Introduction

Our paper investigates changes in the properties of accounting income published by French listed companies during the 1990s, with accompanying analysis of the impact of certain corporate characteristics on this trend. The two properties of accounting income examined are timeliness and conservatism. Timeliness is defined as the extent to which current-period accounting income incorporates current-period economic income. Conservatism is interpreted as the extent to which current-period accounting income asymmetrically incorporates economic losses, relative to economic gains (Basu, 1997). The corporate characteristics referred to in this research are size, international financing and Big Five auditing.

France is a good test location for several reasons: It provides a different institutional context from the US, the country where such accounting properties were initially tested. Most importantly, France is often quoted as a leading representative of the code

Review of Accounting and Finance Vol. 5 No. 2, 2006 pp. 92-107

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    Emerald Group Publishing Limited

1475-7702 DOI 10.1108/14757700610668949

The authors would like to acknowledge the financial support of the Research Center of the HEC School of Management (Budget A0206). They have benefited from the constructive comments of the participants in the Research Center in International Accounting and Management Control (CRECCI), University of Montesquieu Bordeaux IV, May 15, 2002, Bordeaux, France; University of International Business and Economics, December 24, 2002, Beijing, China; 4th Asia-Pacific Journal of Accounting and Economics Symposium, January 6-8, 2003, Shanghai, China. They also thank three anonymous reviewers and Ahmed Riahi-Belkaoui (the editor) for their constructive suggestions. They also thank Ann Gallon for her much appreciated editorial help. The authors are members of the GREGHEC, unite CNRS, FRE-2810

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