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ERASMUS UNIVERSITY ROTTERDAM

Erasmus School of Economics


Master Research Accounting, Auditing !ontrol
Academic "ear #$$% & #$'$
__________________________________________________________
Earnings Conservatism and IFRS:
A Study of the Dutch Situation
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R(A( Oemar
#%)%*+
August #$'$
Su,er-isor. E(A( de /necht RA
!o0reader.
'
Table of Contents
EARNINGS CONSERVATISM AND IFRS:................................................................................................. 1
A STUDY OF THE DUTCH SITUATION..................................................................................................... 1
TABLE OF CONTENTS.............................................................................................................................. 2
1 INTRODUCTION...................................................................................................................................... 4
1.1 BACKGROUND..................................................................................................................................... 4
1.2 OBJECTIVES........................................................................................................................................ 5
1.3 PROBLEM STATEMENT......................................................................................................................... 5
1.4 METHODOLOGY................................................................................................................................... 6
1.5 DEMARCATIONS AND LIMITATIONS......................................................................................................... 6
1.6 STRUCTURE........................................................................................................................................ 7
2 CONSERVATISM..................................................................................................................................... 9
2.1 DEFINITION..........................................................................................................................................
2.2 E!PLANATIONS ................................................................................................................................. 1"
2.2.1 Contracting explanation........................................................................................................... 10
2.2.2 Shareholder litigation, tax and standard setters explanation....................................................12
2.3 IN #HICH #AY THE USE OF CONSERVATISM CAN BE MEASURED$..........................................................13
2.4 SUMMARY ........................................................................................................................................ 15
3 LEGAL SYSTEM.................................................................................................................................... 16
3.1 COMMON LA# VERSUS CODE LA#...................................................................................................... 16
3.2 DUTCH LEGAL SYSTEM....................................................................................................................... 1%
3.3 RELATED LITERATURE........................................................................................................................ 2"
3.4 SUMMARY ........................................................................................................................................ 22
4 THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS).............................................23
4.1 THE PURPOSE OF IFRS .................................................................................................................... 23
4.2 CONSE&UENCES OF IFRS.................................................................................................................. 24
4.3 RELATED LITERATURE........................................................................................................................ 25
4.4 HYPOTHESIS...................................................................................................................................... 27
4.5 SUMMARY......................................................................................................................................... 2%
RESEARCH DESIGN............................................................................................................................. 29
5.1 OBJECTIVE........................................................................................................................................ 2
5.2 RESEARCH APPROACH....................................................................................................................... 2
5.3 RESEARCH METHOD.......................................................................................................................... 31
5.4 SAMPLE SELECTION .......................................................................................................................... 33
5.6 E!PECTATIONS.................................................................................................................................. 34
6 RESEARCH ANALYSIS AND RESULTS.............................................................................................. 36
6.1 DEFINITE SAMPLE.............................................................................................................................. 36
6.2 THE RELATION BET#EEN ACCOUNTING AND ECONOMIC INCOME..........................................................36
6.2.1 Pre- and Post-IFRS.................................................................................................................. 36
6.2.2 Transition period 200-200!.................................................................................................... 3"
6.2.3 #earl$ data............................................................................................................................... 3"
6.3 CONDITIONAL CONSERVATISM............................................................................................................ 3
6.3.1 Pre- and Post-IFRS.................................................................................................................. 3%
6.3.2 Transition period 200-200!.................................................................................................... 3%
6.4 SUMMARY......................................................................................................................................... 41
#
!SUMMARY AND CONCLUSIONS.......................................................................................................... 43
7.1 SUMMARY......................................................................................................................................... 43
7.3 LIMITATIONS AND RECOMMENDATIONS................................................................................................ 46
REFERENCES.......................................................................................................................................... 4"
APPENDI# A: SUMMARY OF MAIN LITERATURE................................................................................. 2
APPENDI# B: SAMPLE OF COMPANIES UNCEASINGLY $UOTED FROM 2%%2&2%%! .....................6
APPENDI# C: DEFINITE SAMPLE........................................................................................................... !
APPENDI# 4: DATA SAMPLE................................................................................................................. "
1
1 Introduction
1.1 Background
Useful financial information is the s,irit of accounting( The recent account scandals li2e
that of Enron in #$$#, has made clear that concerning com,anies it is no longer acce,ta3le to
,ro-ide sta2eholders 4ith financial re,orts that lac2 trans,arenc" or ha-e unrelia3le figures( T4o
of the most famous cor,orate scandals, Enron and 5orld!om, also illustrate the im,ortance of
conser-ati-e accounting( 6or e7am,le, the e-ent that led to 5orld!om8s 3an2ru,tc" 4as the
announcement of that 9 1(% 3illion of 5orld!om8s costs of leasing other com,an"8s net4or2s
ha-ing 3een :im,ro,erl"8 ca,itali;ed rather than e7,ensed( The argument concerning the
ca,itali;ation 4as that unused ca,acit" e7ist that in the future <un-erifia3le= 4ould result in
3usiness( !oncerning the use of conser-ati-e accounting, -erification is a cornerstone <5atts
#$$1=(
>efore ' ?anuar" #$$@, com,anies follo4ed a -ariet" of countr"0s,ecific Aenerall"
Acce,ted Accounting Brinci,les <AAAB=( The Netherlands follo4ed the Dutch AAAB(
Differences 3et4een the national standards caused difficulties in the com,arison of the financial
results( Since #$$@ all Euro,ean stoc2 e7change Cuoted cor,orations, including Dutch
cor,orations, concerning their consolidated financial statements are reCuired to use the
International 6inancial Re,orting Standards <I6RS=( The introduction of I6RS 4as intended to
im,ro-e the accounting Cualit", ensure 3etter com,ara3ilit" and trans,arenc" of the financial
re,orting around the 4orld, and conseCuentl" facilitate cross03order financial transactions( >all
et al( <#$$$= 3elie-e that timeliness and conser-atism together ca,ture much of the conce,t of the
financial statement trans,arenc"( The" state that the use of conser-atism reali;es that le-erage
and di-idend restrictions are 3inding more Cuic2l"( It reali;es o,timistic non0accounting
information released 3" managers less credi3le to uninformed users(
This ,a,er introduces a research to e7amine 4hether a relation e7ists 3et4een the
introduction of I6RS and the timeliness as 4ell as the use of conser-atism in accounting( The
research 4ill 3e 3ased on the research conducted 3" >all et al <#$$$=(
+
1.2 Objectives
The o3Decti-e of this ,a,er is to e7amine earnings Cualit" ,ro7ies 3" earnings
conser-atism in the Netherlands 4here financial re,orting en-ironment has 3een changing due to
I6RS( >" Tilli <#$$)= is stated that usuall" the earnings Cualit" has 3een associated 4ith the use
of conser-ati-e accounting( !onseCuentl", conser-atism is one of the attri3utes of accounting
Cualit"( Deegan <#$$E= defines earnings Cualit" as FGo4 4ell accounting information, such as
annual earnings, ca,ture information that is rele-ant to in-estors(H This field of studies -ie4s
mar2et ,rices <and hence returns= as leading accounting earnings( The timeliness of income
recognition refers to the e7tent that current earnings reflect -alue rele-ant information <e(g(
/an2aan,aa #$$*I >all et al #$$$I Bo,e and 5al2er '%%%=( I6RS is fair0-alue orientated, so a
shift could e7ists in the treatment of earnings and conseCuentl" in the degree of earnings
conser-atism(
!onsistent 4ith the focus on decision usefulness ado,ted 3" the I6RS and 3" academic
researchers, earnings Cualit" and, more generall", financial re,orting Cualit" is of interest
concerning the ,eo,le 4ho use financial re,orts concerning contracting ,ur,oses and concerning
in-estment decisions( After a change in the accounting standards, or 4hich accounting standards
deli-er more Cualit", measuring the degree of conser-atism can sho4 the effect of the changes in
the earnings Cualit" and in the re,orting Cualit"( To e7,lore the usefulness of the financial
statement the research in this ,a,er is a mar2et 3ased accounting research(
1.3 Problem Statement
As e7,lained 3efore the o3Decti-e of this ,a,er is to e7amine the relation 3et4een the
introduction of I6RS and the degree of the use of earnings conser-atism( !onseCuentl", the ne7t
research Cuestion is formulated.
What influence does the use of IFRS have on the timeliness of the reorted net income and
of the degree of the use of earnings conservatism!"
In order to ,ro-ide an ans4er to the main research Cuestion, the ne7t su30Cuestions are stated.
1. What is the content of the term (earnings) conservatism?
2. In which way can the use of conservatism be measured?
@
3. What does the legal system of the Netherlands loo lie?
!. In which way the legal systems are related to the use of conservatism?
". What is the #ur#ose and what are the conse$uences of I%&'?
(. In which way is I%&' related to the use of conservatism?
1. !et"odolog#
The first si7 su30Cuestions 4ill 3e ans4ered 3" ,erforming a literature stud"( This
literature stud" 4ill contain rele-ant studies 4ith regards to the use of conser-atism and
concerning differences in legal s"stems( These ,rior studies also ha-e em,irical results, 4hich
4ill 3e ,resented in a summari;ing ta3le( These studies 4ill ,resent a thorough insight in the
su3Dect that is to 3e in-estigated( The result of this literature stud" 4ill ,ro-ide a 3asis
concerning the em,irical research, 4hich in this stud" 4ill 3e conducted later on(
The em,irical research 4ill 3e ,erformed to ans4er the main research Cuestion( The
sam,le 4ill include the data of all the Dutch stoc2 e7change Cuoted com,anies( >ecause of the
s,ecific accounting reCuirements to 4hich the" ha-e to o3lige, financial institutions and
insurance com,anies 4ill 3e e7cluded( ( This stud" in-estigates the 3efore and after ,eriod of the
mandator" use of I6RS( !onseCuentl", the ,eriod of o3ser-ation 3efore this introduction 4ill 3e
from #$$#0#$$+, a ,eriod of three "ears( !oncerning the ,eriod after the I6RS ado,tion the
,eriod from #$$@0#$$) 4ill 3e used, im,l"ing also a ,eriod of three "ears(
5hen the rele-ant data to measure the relation 3et4een the use of earnings conser-atism,
timeliness of earnings and the introduction of I6RS ha-e 3een o3tained, t4o regressions 4ill 3e
,erformed( The first regression 4ill measure 4hether a relation e7ists 3et4een the introduction
of I6RS and the timeliness of earnings( Ne7t, a second regression 4ill 3e e7ecutedI this
regression 4ill measure if a relation e7ists 3et4een the introduction of I6RS and the use of
earnings conser-atism( In order to e7ecute these regressions a model of >all et al( <#$$$= and
>asu <'%%)= 4ill 3e used(
1.$ %emarcations and limitations
A re-ie4 of the literature sho4s that man" studies ha-e 3een conducted to e7amine the
use of conser-atism across countries( A countr"8s legal s"stem is related to the use of accounting
conser-atism <>ushman and Biotros2i #$$E=( Brior research concerning conser-atism is mostl"
E
,erformed focusing on larger countries li2e the United States, the United /ingdom and Aerman"
<e(g( >arto- et al( <#$$@= and Bo,e and 5al2er <'%%%==( These countries can also :easil"8 3e
classified in the legal s"stem <common or code= in 4hich the accounting regime is em3edded(
Reaction to the I6RS ado,tion differs concerning firms domiciled in common la4 and in code
la4 countries( The distinction in a common or code la4 countr" concerning the Netherlands is
not a clear one( !onseCuentl", it is interesting and challenging to in-estigate the Netherlands on
this im,ortant factor and in 4hich 4a" this is related to conser-atism( Gence, this stud" onl"
concentrates on the Dutch situation(
1.& Structure
!ha,ter # contains a start of the literature stud", in regards to <earnings= conser-atism in
general( The theor" and the definitions of earnings conser-atism 4ill 3e ,resentedI this 4ill 3e
,erformed 3" a literature re-ie4 of ,rior studies concerning the use of earnings conser-atism( In
addition, in the same cha,ter 4a"s to measure conser-atism 4ill 3e ,ro-ided( In this cha,ter,
research su30Cuestions ' and # 4ill 3e ans4ered(
Ne7t, cha,ter 1 ,resents insights in the legal s"stems( Es,eciall" this cha,ter ,ro-ides
insights in 4hich 4a" a legal s"stem has influences on the use of earnings conser-atism and to
4hat legal s"stem the Netherlands 3elongs( This 4ill 3e ,erformed 3" ,resenting a summari;ing
ta3le of the different legal characteristics( In this cha,ter, research su30Cuestion 1 and + 4ill 3e
ans4ered(
!ha,ter + ,ro-ides insights in the content and in the reCuirements of the International
6inancial Re,orting Standards( In addition, 4ill 3e e7,lained in 4hich 4a" the use of I6RS
concerning accounting can influence the use of earnings conser-atism( In this cha,ter, research
su30Cuestions @ and E 4ill 3e ans4ered(
At the end of cha,ter +, the literature research 4ill 3e finali;ed and a 3asis 4ill 3e created
concerning the em,irical ,art of this research( !onseCuentl", cha,ter + 4ill include the
h",othesis for the em,irical ,art of the research(
!onseCuentl", cha,ter @ contains the research design( This cha,ter contains a thorough
e7,lanation of the method 4hat 4ill 3e used, the data sam,le and the ,eriod used to in-estigate
the relation 3et4een the introduction of I6RS and the use of earnings conser-atism(
)
!ha,ter E contains the ans4er to the main research Cuestion, as 4ell as the em,irical
results, the conclusions and the research anal"sis(
6inall", cha,ter ) contains the summar" of the ,re-ious si7 cha,ters and the conclusion
concerning this research(

*
2 Conservatism
This section 4ill first ,a" attention on the definition of the term conser-atism( In
addition, e7,lanations concerning the term conser-atism 4ill 3e commented( After 4hich
different t",es of methods to measure the use of conser-atism 4ill 3e e7,lained(
2.1 %efinition
!onser-atism is defined as the differential -erifia3ilit" reCuired concerning the
recognition of ,rofits -ersus losses <5atts #$$1=( Its e7treme form is traditionall" e7,ressed 3"
the rule. Fantici,ate no ,rofit, 3ut antici,ate all losses(H
>asu <'%%)= defines conser-atism as Fthe accountant8s tendenc" to reCuire a higher
degree of -erification for recogni;ing good ne4s in earnings than for recogni;ing 3ad ne4s(H In
this 4a", the -erification reCuirements concerning gains and losses can 3e ,ointed out( The
as"mmetric treatment of gains and losses leads to the understatement of net assets( >asu <'%%)=
e7,ects accounting ,ractice to 3e timelier in incor,orating 3ad ne4s a3out firm -alue into
accounting income than good ne4s( The use of conser-atism can 3e measured in degrees. The
greater the difference in degree of -erification reCuired concerning gains -ersus losses, the
greater the conser-atism e7ists(
Aarcia Jara and Mora <#$$+= used a distinction 3et4een the 3alance sheet conser-atism
and the earnings conser-atism( The" state the follo4ing a3out the 3alance sheet conser-atism.
FThe definition of 3alance sheet conser-atism that 4e use in our stud" is the one stated 3"
6eltham and Ohlson <'%%@=, 4ho define conser-atism as the e7istence of a ,ersistent
understatement of the 3oo2 -alue figure 4ith res,ect to mar2et8s -aluation of the firm( This
im,lies that the mar2et0to03oo2 ratio 4ill 3e greater than one(H Earnings conser-atism is the one
,ro,osed 3" >asu <'%%)= as stated 3efore, that is, a timelier recognition of 3ad ne4s in earnings
relati-e to good ne4s(
These t4o t",es of conser-atism 3" >ea-er and R"an <#$$@, ,(#E%= are referred to
res,ecti-el" as :unconditional8 and :conditional8( Unconditional accounting conser-atism is
referred to as e70ante or ne4s0inde,endent. The 3oo2 -alue of net assets is understated due to
,redetermined as,ects <ado,ted accounting methods and ,olicies= in the accounting ,rocess(
%
!onditional accounting conser-atism is e70,ost or ne4s0de,endent. The 3oo2 -alue is 4ritten
do4n under ad-erse circumstances, 3ut not u, under fa-ora3le circumstances( !onseCuentl",
conditional accounting conser-atism refers to the use of accounting methods and ,olicies that
recogni;e 3ad ne4s in earnings on a timelier 3asis that good ne4s( Bae <#$$), ,(E*+= e7,lains
the difference 4ith t4o e7am,les( FUnconditional accounting conser-atism includes the
immediate e7,ensing of ad-ertising and research and de-elo,ment e7,enditures, and the
historical cost accounting concerning ,ositi-e net ,resent -alue ,roDects <K= conditional
accounting conser-atism include the a,,lication of the lo4er of cost or mar2et rule concerning
in-entor", the im,airment test of long0li-ed assets, and the as"mmetric treatment of contingent
losses -ersus contingent gains(H
2.2 '()lanations
The ,a,er 3" >asu <'%%)= started the stream of research on earnings conser-atism(
Institutional factors as contracting, shareholder litigation, ta7ation, and accounting regulation are
re,orted to affect the le-el of conser-atism <5atts #$$1=( According to 5atts <#$$1, ,(#$%0#'$=
there are four e7,lanations for conser-atism in accounting. contracting, shareholders litigation,
ta7ation, and regulations(
2.2.1 )ontracting e*#lanation
>all <#$$'= and 5atts <#$$1= communicate arguments and e-idence that su,,ort
conser-atism as ,art of an efficient contracting technolog"( >oth authors start 3" assuming that
t4o t",es of accounting information e7ist a3out net asset -alue and future cash flo4s.
i= eas"0to0-erif" information and,
ii= difficult0to0-erif" information(
Eas"0to0-erif" information might consist of shoc2s to o,erating among others cash flo4,
accounts recei-a3le, in-entor", and accounts ,a"a3le( This t",e of accounting information is
incor,orated into financial statements in a timel" manner and a little de3ate e7ists that the
as"mmetric recognition of this information is necessar" or desira3le( Discussions a3out
conser-atism mostl" re-ol-e around the accounting treatment of difficult to0-erif"
information, 4hich might consist of shoc2s among others to the -alue of the RD acti-ities,
'$
the treatment of good4ill, the restructuring costs related to ,lant closings and the 3enefits
from a 3rand name(
>all <#$$'= and 5atts <#$$1= consider se-eral characteristics of difficult0to0-erif"
information that dri-e the efficient le-el of as"mmetric gain and loss recognition, including.
'= greater costs of incor,orating difficult0to0-erif" information into financial statements
-is0L0-is eas"0to0-erif" informationI
#= lo4er relia3ilit" of difficult0to0-erif" information -is0L0-is eas"0to0-erif"
informationI
1= as"mmetric usefulness of ,rofits and losses to some users of the financial statements
<e(g( 3ondholders=I and
+= an attem,t to e7tract e7cess com,ensation managerial incenti-es e7ists to 3ias
financial re,orts u,4ards(
5atts states that 4ithin contracting se-eral attri3utes of accounting measures are
,resented. timeliness, -erifia3ilit", and as"mmetric -erifia3ilit"( The histor" of the timeliness
attri3ute is the agenc" costs theor", 4hich 4as introduced 3" 5atts and Mimmerman in '%*E(
The" argue that agenc" cost arise 4hen ,arties, i(e( managers or de3tors, ma7imi;e their o4n
-alue, instead of the firm8s -alue( This 4ill arise in agenc" costs, ho4e-er these costs can 3e
reduced 3" contracts, conseCuentl" reducing the a3ilit" of ,arties to ma7imi;ing their o4n -alue
instead that of the firm( Go4e-er, this im,lies that the contracting ,arties need more timely
information in order to im,ro-e efficienc" of this 2ind of restriction(
In the theor" of conser-atism is e7,lained that 4ithin contracting -erification is
necessar"( A higher degree of verification is reCuired concerning gains than concerning losses(
This can 3e e7,lained 3" the fact that the rele-ant ,arties to the firm ha-e asymmetric #ayoffs
from the contracts(
5atts <#$$1, ,( #'+= states the follo4ing. FIn de3t, com,ensation, and other contract
e7,lanations, conser-atism emerges almost naturall" as an efficient contracting mechanism
3ecause it is o,timal for contracts ,erformance measures to ha-e more stringent -erification
standards for gains than for losses( As 3efore, the as"mmetr" in standards leads to greater dela"
in the recognition of gains as in the recognition of losses( The result is that net assets and
''
cumulati-e earnings are less li2el" to 3e o-erstated at an" ,oint in time, reducing the li2elihood
of distri3utions that -iolate contracts and reduce the -alue of the firm(H
>" 5atts <#$$1, ,(#'+= three e7am,les ha-e 3een ,resented.
In com,ensation schemes, managers normall" 4ould instigate effort to o-erstate net
assets and cumulati-e earnings conseCuentl", enhancing their com,ensation, instead of
ta2ing ,ositi-e net ,resent -alue ,roDects( This can 3e reali;ed 3ecause managers ha-e
more information than other ,arties do a3out certain accounting num3ers and 3ecause
there is an a3sence of -erifia3le reCuirements managers can ma7imi;e their o4n -alue,
,otentiall" harming the -alue of the firm( !onseCuentl" conser-atism reduces the
li2elihood this could ta2e ,laceI
!onser-atism also ,ro-ides ,rotection for shareholders8 o,tion to e7ercise their ,ro,ert"
rights( This 3ecause conser-atism ,ro-ides timel" signals for the e7istence of negati-e
net -alue <NBV= ,roDects, conseCuentl" gi-ing the chance to ta2e actions against the
manager for acce,ting such a NBV ,roDectI
Also in Fde3t co-enants conser-atism reduces the li2elihood management 4ill forgo
,ositi-e net -alue ,roDects, o-erstate earning and assets, and ma2e 4hat is effecti-el" a
liCuidating di-idend ,a"ment to shareholders at the e7,ense of de3t holdersH <5atts,
#$$1, ,(#'+=(
2.2.2 'hareholder litigation+ ta* and standard setters e*#lanation
E7ce,t concerning the contracting e7,lanation, 5atts <#$$1= in addition ,resented three
other e7,lanations, the shareholder litigation, the ta7, and the standard setters8 e7,lanations,
4hich 4ill 3e de,icted ne7t(
Shareholder litigation ,roduces as"mmetric ,a"offs( O-erstating the firm8s net assets is
more li2el" to cause litigation costs concerning the firm than understating net assets(
!onseCuentl", the use of conser-atism reduces the e7,ected litigation costs(
The lin2 3et4een the ta7a3le income and the re,orting can also generate conser-atism in
financial re,orting( As"mmetric recognition of gains and losses allo4s managers to reduce the
,resent -alue of the ta7es and increase the -alue of the firm(
Regulation also ,ro-ides an e7,lanation concerning the firm8s re,orted financial
statements to 3e conser-ati-e( Josses from o-er-alued assets and o-erstated income are more
'#
o3ser-a3le and usa3le in the ,olitical ,rocess than forgone gains due to the under-alued assets or
the understated income( >ecause the" 4ould 3e more critici;ed if the" ado,t accounting
standards that fa-or o-erstatement of net assets instead of understatement of net assets, standard
setters and regulators are e7,osed to as"mmetric loss functions(
2.3 In *"ic" *a# t"e use of conservatism can be measured+
According to 5atts <#$$1=, researchers use three t",es of measures to assess the use of
conser-atism.
'= Net asset measures
#= EarningsNStoc2 returns relation measures
1= EarningsNAccrual measures
#et asset measures
The mar2et -alues of the assets and lia3ilities can change from ,eriod to ,eriod( Not all these
changes might 3e recorded in the accounts and not reflected in the financial re,orts( According to
5atts <#$$1=, under accounting conser-atism, not sufficientl" -erifia3le increases in asset -alues
or gains are not recorded, 4hile decreases of similar -erifia3ilit" are recorded( This results in an
understatement of net assets( In order to estimate these understatements, researchers used the
models of firm8s share -aluation and >oo20to0Mar2et ratio(
Aenerall" used -aluation models are the 6eltman0Ohlson -aluation models <6eltman and
Ohlson '%%@, '%%E=( Accounting conser-atism is measured 3" the -aluation model estimations
and 3" time0series estimations of the relation 3et4een the se-eral accounting -aria3les, 4hich
are the in,uts to the -aluation model( !onser-atism e7ists if the mar2et -alue of the firm e7ceeds
on a-erage the 3oo2 -alue, i(e( if the mar2et to 3oo2 ratio is consistentl" greater than one(
6eltham and Ohlson <'%%@= and >ea-er and R"an <#$$$= ha-e theoreticall" descri3ed the effects
of this notion of accounting conser-atism, 4hich is denominated as the 3alance sheet
conser-atism(
The >oo20to0Mar2et <>TM= ratio is another ,o,ular net asset measure of conser-atism( The
underl"ing idea of this measure is that conser-atism, ceteris #aribus+ tends to understate the net
3oo2 -alues of a firm from the firm8s OtrueO economic -alue, 4hich results in a lo4 >TM ratio(
'1
!onseCuentl", the lo4er the >TM ratio, the lo4er the degree of accounting conser-atism it
im,lies, and -ice -ersa( To measure the use of conser-atism >ea-er and R"an <#$$$= used the
regressed 3oo20to0mar2et ratios on the indi-idual "ear, and on the firm dumm" -aria3les and on
the firm stoc2 returns concerning the current and the ,re-ious fi-e "ears(
Earnings$Stoc% returns relation measures
>asu <'%%)= ,redicts and finds that earnings res,ond more to negati-e returns <a ,ro7"
concerning 3ad ne4s= than to ,ositi-e returns <a ,ro7" concerning good ne4s=( Ge Cualified this
differential res,onse as the as"mmetric timeliness of earnings and used this as a measure to
detect the use of conser-atism( The ,eriods of 3ad and good ne4s are identified 3" the sign of
the ,eriodOs stoc2 return( Stoc2 returns ca,ture 3oth e7,ected good ne4s and e7,ected 3ad ne4s(
Earnings in contrast, reflecting the conser-atism ,rinci,le, reCuires a much higher degree of
certaint" concerning ca,turing good ne4s than concerning ca,turing 3ad ne4s( >asu8s measure
is calculated 3" fitting the follo4ing regression to a cross0sectional sam,le of firms.
NI
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, net income scaled 3" "ear0end mar2et ca,itali;ation( &
t
is stoc2 returns concerning
"ear t and 0&
t
is a dumm" -aria3le 4hich eCuals one if &
t
P $ and ;ero other4ise( DR
t
is used as
a ,ro7" concerning good ne4s -ersus 3ad ne4s( According to the >asu <'%%)= model, -
2
measures the res,onse of the earnings to ,ositi-e returns, 4hile (-
2
/ -
3
) measures the res,onse
4hen returns are negati-e( As stated 3efore, conser-atism means that earnings reflect O3ad ne4sO
more Cuic2l" than Ogood ne4sO im,l"ing that (-
2
/ -
3
) 2 -
2
4hich means that -
3
2 $( >asu <'%%)=
Cualified -
3
as the as"mmetric timeliness coefficient( The underl"ing notion 3ehind this ,remise
is that, 4ith the use of conser-ati-e accounting, earnings reflect 3ad ne4s more Cuic2l" than the"
reflect good ne4s(
Earnings$Accrual measures
In order to measure the degrees of accounting conser-atism of ,ri-ate com,anies in the
U/, >all and Shi-a2umar <#$$@= de-elo,ed the As"mmetric Accrual to !ash flo4 measure
'+
<AA!6=( This can 3e Cualified as the non0stoc20mar2et -ersion of the >asu8s measure( The
AA!6 measure is 3ased on the ne7t 2e" regression model.
3))
t
, -
.
/ -
1
0)%4
t
/ -
2
)%4t / -
3
0)%4
t
5 )%4
t
/ 1
t
3))
t
is. Accruals measured as 6 Inventory Q 6 0ebtors Q 6 4ther current assets 0 6 )reditors 0
6 4ther current liabilities & 0e#recation
)%4
t
. !ash0flo4 concerning ,eriod t
0)%4
t
. Dumm" -aria3le that is eCual to $ if )%4
t
RS $I and eCual to ' if )%4
t
P$(
The AA!6 measure is 3ased on the same fundamental structure as the >asu measure, although
the choices of the -aria3les are different( The 2e" difference 3et4een the AA!6 model and the
>asu model is in the difference in choices of the ,ro7" -aria3les that re,resent economic ne4s
and the 4a" in 4hich accounting num3ers reflect the economic ne4s( The >asu measure uses the
stoc2 returns as the ,ro7" concerning economic ne4s, 4hile the AA!6 measure uses the cash
flo4 of the current ,eriod as the ,ro7"( !oncerning the 4a" in 4hich accounting num3ers reflect
the economic ne4s, the >asu model is 3ased on accounting earnings, 4hile the AA!6 measure is
3ased on the amount of accruals in the 3alance sheet( !onseCuentl", this method measures the
3alance sheet conser-atism(
2. Summar#
This cha,ter ,resents the definitions and the e7,lanations concerning the use of
conser-atism( It is essential to 2ee, in mind that t4o t",es of conser-atism e7ist. '= >alance
sheet conser-atism or unconditional conser-atism and #= Earnings conser-atism or conditional
conser-atism( This research focuses on the second t",e of conser-atism( 6urthermore, methods
to measure the use conser-atism ha-e 3een e7,lained( These can 3e di-ided into three t",es. Net
asset measures, EarningsNStoc2 returns relation measures and EarningsNAccrual measures, the
second t",e measures the use of earnings conser-atism(
In the ne7t cha,ter is concentrated on different legal s"stems, more s,ecificall" in 4hich
4a" the" relate to the use of earnings conser-atism(
'@
3 ,egal S#stem
To anal";e changes in the ,ro,erties of the accounting income ,u3lished 3" Dutch
com,anies, it is essential to understand the institutional conte7t of the Netherlands( >ushman and
Biotros2i <#$$E= e7,lain 4h" the distinction 3et4een common la4 and code la4 is essential(
>ecause the institutional ,illars e-entuall" create the set of incenti-es underl"ing most of the
e7,lanations concerning the use of conser-ati-e accounting ,ractices, the" state that although
the" cannot reDect or confirm a gi-en e7,lanation concerning accounting conser-atism, the
identification of the institutions is a rele-ant first ste, to ta2e( ( >all et al( <#$$1= state. FA useful
starting ,oint is to classif" countries into 4hether accounting standards ,redominantl" originate
in mar2ets <i(e( common0la4 countries such as Australia, !anada, U/, and US= or in
go-ernments <i(e( code0la4 countries such as 6rance, Aerman", and ?a,an=H The case of the
Netherlands is indeed a ,u;;le( !onseCuentl", it is first necessar" to comments the
characteristics of the common la4 and of the code la4 s"stem( Ne7t, to ,lace it as a common la4
or a code la4 countr", the Dutch situation 4ill 3e more dee,l" in-estigated( Ne7t, ,rior research
that incor,orates the earnings conser-atism reflected in the common and in the code la4
countries 4ill 3e ,resented(
3.1 Common la* versus code la*
International accounting literature has long recogni;ed the ,re-alence of a ,articular legal
s"stem <common la4 or code la4= to 3e an im,ortant -aria3le affecting the accounting s"stem of
a countr" <Rade3augh et al( #$$E=( The literature recogni;es that common0la4 countries are
oriented to4ards fair ,resentation, trans,arenc", and full disclosure <2no4n as the Anglo0Sa7on
model=( Standard setting is carried out in these countries 3" 3odies in the ,ri-ate sector, and the
stoc2 mar2et is the dominant source of financing concerning cor,orate entities( >" contrast, in
code la4 countries, 3an2s or go-ernments are the main sources of financing and financial
accounting is geared to4ards creditor ,rotection <2no4n as the !ontinental model=( 6inancial
re,orting, in these countries, is characteri;ed 3" lo4 disclosures and an alignment of financial
accounting 4ith the ta7 la4s( In addition, go-ernments ha-e a strong influence in setting
accounting standards(
'E
To in-estigate 4hich of the t4o is the better one, se-eral studies ha-e 3een conducted
to4ards the difference 3et4een the common and the code la4( One of the first 4ho ,erformed
such a stud" 4as Ga"e2 <'%E$=( The 3asic underl"ing ,aradigm as is communicated 3" Ru3in
<#$$+= a3out the theor" of Ga"e2 is that common la4 countries gi-e less ,o4er to the state than
to the ci-il la4 s"stems( The lin2 3et4een the t4o ma" 3e the 4illingness of the common la4 to
allo4 com,etition 3et4een com,eting legal s"stems(
M"4ic2i <#$$1= has em,hasi;ed the 3enefits of this com,etition. FThis com,etition
among courts led to inno-ation and incenti-es to ,ro-ide efficient legal rules( !ourts that
attem,ted to turn the la4 into a mechanism of 4ealth redistri3ution 4ere confronted 3" the
ina3ilit" to coerce un4illing ,arties to ,ro-ide those 4ealth transfers( >" contrast, the demise of
com,etiti-e la4 in England and the United States has increased the incenti-es and o,,ortunities
for rent0see2ing( Jitigants ha-e limited a3ilit" to e7it Durisdictions 4ith inefficient legal
regimes(H
>ased on se-eral ,a,ers, ne7t an e7,lanation of the differences 3et4een code and
common la4 s"stems 4ill 3e summari;ed. >all et al <#$$$=, >all et al <#$$1=, Aarcia Jara et al
<#$$@= and Ja Borta <'%%*=( !ode la4 countries are more orientated in go-ernments( The" ha-e
more a sta2eholder model, the standard setting and the enforcement is mostl" a ,u3lic sector
function( These sta2eholders incor,orate maDor ,arties that ha-e contracts <e(g( Su,,liers of
ca,ital <mainl" 3an2s=, la3or or maDor su,,liers= 4ith the firms and the" are re,resented in 3oth
4riting and go-ernance of the accounting code( In the code la4 s"stem, de3t tends to 3e ,ri-ate
and the larger shareholders tend to 3e concentrated in institutions <such as 3an2s=( In contrast to
common la4 countries, in code la4 3ased countries the main ,ro-iders of ca,ital are 3an2s(
Since these financial institutions alread" 2no4 a3out the financial affairs of the com,an" through
other timelier sources, conseCuentl", the demand concerning timel" information in the annual
accounts is less im,ortant( ( Auditors certif" that the financial statements are in conformit" 4ith
the code and if not it 4ill 3e Cualified as a criminal act 4hich 4ill lead to ,enalties such as fines
or Dail(
In contrast to code la4 countries, common la4 countries often ha-e a more di-erse 3ase
of indi-idual shareholders and the information as"mmetr" is more efficientl" resol-ed through
,u3lic disclosures, ma2ing it a mar2et03ased model( !onseCuentl", a larger demand e7ists
')
concerning Cualit" <Fincluding more timel" incor,oration of economic income in re,orted
incomeH <>all et al #$$1, ,(#+'=(
<'= FThe as"mmetric loss function of de3t holders im,lies a ,articular demand
concerning earnings conser-atism, 3ecause timel" recognition of economic losses ma2es e7isting
le-erage and co-erage co-enants 3inding more Cuic2l"H <>all et al #$$1, ,(#+'=(
<#= Another as,ect of common la4 is the monitoring role of e7ternal shareholders and
anal"sts, rather than 3" su,er-isor" 3oard mem3ers <code la4 countries=, 4hich also im,lies
more timel" recognition of economic losses(
<1= Jitigation ris2 is an im,ortant as,ect of the differences 3et4een common and code
la4 countries(
>ecause the o4nershi, of the com,an" is s,read o-er a 4ide num3er of shareholders
<4ho could sue managers or auditors 4ho do not disclose financial information in a timel"
manner=, the litigation ris2 is considered to 3e the main trigger concerning the use of earnings
conser-atism <e(g( Aarcia Jara et al #$$@=( Ja Borta <'%%*= dra4s the conclusion that la4s
around the 4orld ,resents the in-estor a limited set of rights( Go4e-er, he concluded that
countries that ha-e rules, 3ased on a common0la4 tradition, ,rotect the in-estor considera3l"
more than countries that ha-e a code la4 tradition( Auditors in common la4 countries certif" that
financial statements ,resent a Ftrue and fair -ie4H or are in conformit" 4ith the mar2et standards
such as AAAB(
3.2 %utc" legal s#stem
The ,re-ious ,aragra,h commented the characteristics of the e7isting legal s"stem( This
can 3e summari;ed in the ne7t ta3le.
Common ,a* Code ,a*
Strong eCuit" mar2et 5ea2er eCuit" mar2et
Man" outside shareholders !ore, insider shareholders
Jarge auditing ,rofession Small auditing ,rofession
Se,arate accounting and ta7 rules Ta7 dominates accounting rules
Table 3.1
>ased on e7isting literature it is some4hat confusing 4hether the Netherlands <3efore I6RS= can
3e defined as a common la4 or a code la4 countr"( Aarcia Jara et al( <#$$@, ,(E%@= stated the
ne7t. FBre-ious research on earnings conser-atism in an international conte7t sho4s that
'*
common0la4 accounting regimes <the U/ 3eing the clearest e7am,le in Euro,e= are more
earnings conser-ati-e than code0la4 3ased accounting regimes <all Euro,ean continental
countries, e7ce,t The Netherlands=(H !onseCuentl", the" define the Netherlands as a common
la4 countr"( Jeu; et al( <#$$1= use a distinction 3et4een common and code la4 countries 3"
creating a model 3ased on the research of Ja Borta <'%%*= and >all et al( <#$$$=( This model
di-ides countries 4ith certain institutional -aria3les, 4hich areI Outside shareholder rights, legal
enforcements, the im,ortance of eCuit" mar2et, o4nershi, concentration and disclosure inde7(
>" measuring these -aria3les, a score is created and the Netherlands is defined as a code la4
countr"(
Accounting in the Netherlands is 3ased on a ,rescri,ti-e regime rooted in the Roman la4
<code=, 3ut allo4s ,rofessional Dudgment and com,ares fa-ora3l" 4ith the Anglo0Sa7on model
<common= <Rade3augh et al( #$$E=( It seems that the Netherlands e7hi3its some of the ,ro,erties
of a common la4 countr", conseCuentl" it can 3e understood that some studies grou,ed the
Netherlands as a common la4 countr"( 6or e7am,le, the Netherlands has a small stoc2
e7change, 3ut man" multinationals <such as Unile-er, Bhili,s, and Ro"al Dutch= that are stoc2
e7change Cuoted( It seems reasona3le, then, to ,lace the Netherlands 4ith the English0s,ea2ing
4orld in an :outside shareholder8 grou, as o,,osed to a :3an2Nfamil"8 grou,, conseCuentl", the
Netherlands sho4s a strong eCuit" mar2et li2e common la4 countries( >esides that, The
Netherlands also has t4o se,arate sets of re,orting reCuirements <ta7 re,orting and financial
re,orting=, 4hich is a common la4 characteristic(
Go4e-er 4hen e7amining a little dee,er, it can 3e concluded that the Netherlands sho4
more characteristics of a code la4 countr"( ?ong et al <#$$+= studied shareholder meetings in the
Netherlands( The" state that the legal ,rotection of the shareholders is ,oor due to the ,resence
of the ta2eo-er defenses, such as certificates, 4hich de,ri-e shareholders from their -oting
rights( An anal"sis of the minutes of #+@ general meetings in the ,eriod '%%*&#$$# re-eals that
on a-erage 1$T of the eCuit" ca,ital is re,resented at the meeting( Their anal"ses sho4 that
,ension funds are the most acti-e and critical shareholders at the meetings, 4hile certificates
effecti-el" restrict shareholder rights( The main conclusion is that the general meetings in the
Netherland do not ,ro-ide shareholders an" significant influence on management( The
Netherlands conseCuentl" sho4s a 4ea2 in-estor ,rotection, 4hich im,lies a code la4
characteristic(
'%
6urthermore, the Netherlands has a large influence of la3or <as a sta2eholder= on cor,orate
go-ernance <Aenerall" 2no4n as the so0called FBolder ModelH=( The Netherlands also sho4s a
strong ,reference and the use of de3t as a source of financing, as against the use of outsider
eCuit" <de Gaan and Ginloo,en #$$1=( In code la4 countries, de3t rather than eCuit" is the
dominant source of financing( Moreo-er in the Dutch situation, share o4nershi, is dis,ersed,
conseCuentl" monitoring 3" 3loc2 shareholders is largel" a3sent <Aelauf and den >roeder '%%E=(
6inall" a direct go-ernment in-ol-ement e7ists of in standard setting <The R? standards
4hich are lin2ed to the Dutch !i-il !ode, if one does not conform to the code the" could 3e
,erforming a criminal act=(
3.3 -elated literature
>all, /othari, and Ro3in <#$$$= ,ro-ide e-idence that accounting measurement sho4
more earnings conser-atism in common la4 countries <e(g(, the United States and United
/ingdom= than in code la4 countries <e(g(, 6rance and Aerman"=( The" also conclude that code
la4 institutional factors are rele-ant on the accounting income( !onseCuentl", the conclusion can
3e dra4n that code la4 accounting income is noisier and less oriented to the incor,orate current
economic income, than common la4 countries( <>all et al #$$$=(
In the same light as the conclusion stated 3efore is the conclusion dra4n 3", >ushman
and Biotros2i <#$$E=. F5e document that, in common la4 countries, firms facing high state
in-ol-ement in the econom" tend to s,eed the recognition of good ne4s and slo4 the recognition
of 3ad ne4s relati-e to firms in countries 4ith less state in-ol-ement( In contrast, in ci-il la4
countries, high state in-ol-ement leads firms to slo4 the recognition of good ne4s and s,eed the
recognition of 3ad ne4s relati-e to firms in countries 4ith less state in-ol-ement( !onseCuentl",
managers a,,ear to adDust their financial re,orting in res,onse to the nature of the state8s
in-ol-ement(H
>ushman and Biotros2i <#$$E= also state that the in-estor ,rotections em3odied in
cor,orate la4 and the efficienc" and im,artialit" of the Dudicial s"stem are significant in creating
incenti-es concerning timel" loss recognition( 6irms in countries 4ith strong in-estor ,rotections
and high Cualit" Dudicial s"stems reflect 3ad ne4s in re,orted earnings num3ers in a more timel"
#$
fashion than firms in countries characteri;ed 3" 4ea2 in-estor ,rotections and lo4 Cualit"
Dudicial s"stems(
As signaled 3efore, the demand, concerning timel" information in code la4 countries, in
the annual accounts is less im,ortant( >ecause the o3Decti-e of the financial institutions is to 3e
sure that if the firms get in hot 4ater the" can still reco-er their in-estments trough liCuidation of
assets, this leads to a more 3alance sheet conser-atism 4ithin the firms( ( !onseCuentl", greater
3alance sheet conser-atism is o3ser-ed in code0la4 3ased countries <e(g( Aarcia Jara and Mora,
#$$+=( Bo,e and 5al2er <#$$1= sho4 that earnings conser-atism decreases 4ith the 3alance
sheet conser-atism( If a ,articular asset in the 3alance sheet not has 3een recogni;ed, ne4s a3out
that ,articular asset 4ill not 3e included in earnings, and 4ill not create an" as"mmetr" in the
ne4s recognition in the earnings( In addition, 3" Bo,e and 5al2er <'%%%= is communicate, >all
et al <'%%)= detect that the difference in sensiti-ities of earnings in regard of 3ad ne4s
recognition against good ne4s is larger in common la4 AAAB countries in contrast to code la4
AAAB counties( The" find this consistent 4ith rules of income recognition in common la4
countries, 4hich are directed ,rimaril" to4ard incor,oration of 3ad ne4s(
Aarcia Jara et al( <#$$@, ,()#'=, conclude that conser-atism 4ill 3e in all conce,tual
frame4or2s of accounting ho4e-er the incenti-es 4ill differ( The" 4ill 3e lin2ed 4ith the
litigation threat, 4hich are e7,ected to differ 3et4een the common and the code la4 countries(
The authors also concluded the follo4ing. FOur findings e7,lain 4h" in ,re-ious studies the
measures of earnings conser-atism in Euro,ean continental countries 4ere too large and too
similar to those in the U/( 5e argue that managers in Euro,ean continental countries ha-e
incenti-es to manage earnings do4n4ards, and that this 3eha-ior is li2el" to affect seriousl" the
results of accounting research in Euro,e(H This e7,lains that e-en though earnings conser-atism
differences 4here e7,ected 3et4een the common and the code la4 countries in Euro,e, the"
4ere not significant( This 3ecause the effect of the use of earnings management often 4as not
incor,orated into the research ,erformed earlier( Go4e-er, the" sho4 that in certain institutional
conte7ts <4ea2er in-estor ,rotection and less dis,ersed o4nershi, structure= earnings
management significantl" dri-es the measures of earnings conser-atism(
>all et al( <#$$1= conducted a research among four Asian countries( The" e7,ected that
four Asian countries <Gong /ong, Mala"sia, Singa,ore, and Thailand= that ha-e some common
la4 heritage, including accounting standards, 4ould sho4 less conser-atism than common la4
#'
countries( Go4e-er, those four countries ha-e t4o code la4 attri3utes, 4hich are im,ortant to
the relation 3et4een the financial re,orting and the contracting. F6irst there are ,olitical
influences on financial re,orting, and secondl", information as"mmetr" is resol-ed through
,ri-ate channels of communication rather than through ,u3lic disclosure(H <5atts #$$1=
3. Summar#
In this section, the characteristics of the common la4 and the code la4 s"stems ha-e 3een
e7,lained( The degree of conser-atism in common la4 and in code la4 countries seems to differ(
The differences can 3e o3ser-ed in ta3le '( >ased on these characteristics, the Netherlands is
Cualified as a code la4 countr"( Brior research confirms that the use of earnings conser-atism in
common la4 countries is higher com,ared to the code la4 countries( !ode la4 countries
ho4e-er sho4 more the use of 3alance sheet conser-atism( The use of earnings conser-atism
decreases 4ith the use of 3alance sheet conser-atism( 5hile 2ee,ing the different characteristics
in mind, it is interesting to in-estigate the effect concerning these indi-idual s"stems or
underl"ing countries after mandator" use of I6RS in #$$@(
The ne7t cha,ter ,resents section gi-es an o-er-ie4 of the content of I6RS and its
,ur,oses( More s,ecificall" I6RS is related to earnings conser-atism(
##
T"e International .inancial -e)orting Standards /I.-S0
To ,resent an idea of the institutional conte7t in the Netherlands, the ,re-ious cha,ter
descri3ed the e7isting legal s"stems( It is also rele-ant to in-estigate the de-elo,ments in
accounting regulation in the Dutch situation( The mar2 of the Anglo0Sa7on accounting culture
4ithin the conce,tual frame4or2 since the introduction of I6RS, leads to Cuestion the influence
it ma" ha-e on the financial re,orting of the Dutch stoc2 e7change Cuoted com,anies( This
frame4or2 contains the ,rinci,les and defines the o3Decti-es and the Cualitati-e characteristics of
the accounting information(
.1 T"e )ur)ose of I.-S
In this ,art, certain influences of the introduction of the International 6inancial Re,orting
standards <I6RS= 4ill 3e ,resented( As signaled in the Introduction ,aragra,h, 3" the Euro,ean
!ommission8s :IAS Regulation8 I6RS ha-e 3een set as mandator" concerning the consolidated
financial statements of firms ,u3licl" traded in the Euro,ean Economic Area as of ' ?anuar"
#$$@( This a,,lication aimed to ensure trans,arenc"I relia3ilit" and com,ara3ilit" of the
financial statements 3" im,ro-ing the Cualit" of re,orting in order to lo4er ,re,aration costs,
lead to more effecti-e in-estment decisions and reduce the cost of ca,ital( In addition, the
im,lementation intended to create a single Euro,ean mar2et(
The 4ides,read ado,tion of I6RS ,ro3a3l" resulted in a fundamental change in the
3usiness en-ironment, 3ecause 3efore the "ear #$$@, com,anies follo4ed countr"0s,ecific
Aenerall" Acce,ted Accounting Brinci,les <AAAB=( The 6rame4or2 under I6RS sets out the
conce,ts that underlie the ,re,aration and ,resentation of financial statements concerning
e7ternal users( The ne7t ta3le ,ro-ides elements of the conce,tual frame4or2(
#1
Objective of .inancial Statements To ,ro-ide information useful in ma2ing economic
decisions
!ain 1ualitative c"aracteristics of
Information
Understanda3ilit", Rele-ance, Relia3ilit",
!om,ara3ilit"
2sers of .inancial Statements In-estors, Em,lo"ees, Jenders, Su,,liers, and other
trade !reditors, !ustomers, Ao-ernments, and their
agencies, Bu3lic(
!ost im)ortant 2sers Investors as the" ,ro-ide ris2 ca,ital to the entit"(
Information that meets their needs 4ill also meet
most of the needs of other usersK
Table .1 'lements of Conce)tual .rame*ork I.-S
To in-estigate the effects of the standards on the Cualit" of financial re,orting, since the
introduction of I6RS, se-eral researches ha-e 3een conducted( The information as"mmetr" in
financial re,orting can 3e declined 3" gi-ing timel" and rele-ant information <6ran2el and Ji
#$$+=( Soderstrom and Sun <#$$)= argued that there is a considera3le difference in accounting
Cualit" and economic efficienc" 3et4een countries( F>all et al( <#$$1= stated the follo4ing
ado,ting high0Cualit" standards might 3e a necessar" condition concerning high Cualit"
information, 3ut not necessaril" a sufficient one(H <Vanstraelen and Van Tendeloo, #$$@, ,('@@=
!onseCuentl", international accounting s"stems are an interesting setting concerning the testing
of economic conseCuences of financial re,orting( In that light the EU8s mo-ement to I6RS ma"
,ro-ide ne4 insights as firms, from different legal and accounting s"stems, ado,t a single
accounting standard at the same time(
.2 Conse1uences of I.-S
The ado,tion of I6RS has conseCuences concerning the Netherlands, 3ecause I6RS and
Dutch AAAB are 3ased on different ,hiloso,h"( I6RS is concentrated on eCuit" holders8
,rotection, 4hile Dutch AAAB ,rotects de3t holders( 6urthermore, I6RS em,lo"s fair -alue
accounting, 4hile the accounting under the Dutch standard utili;es historical cost accounting(
'

As stated earlier Bea <#$$), ,(E*+= ,u3lished certain e7am,les of conditional <earnings=
conser-atism( Ge communicated that FKconditional accounting conser-atism include the
a,,lication of the lo4er of cost or mar2et rule concerning in-entor", the im,airment test of long0
'
Summaries of all I6RS standards can 3e found at the 4e3site of International Accounting Standards >oards
<444(ias3(org =
#+
li-ed assets, and the as"mmetric treatment of contingent losses -ersus contingent gainsH( >ased
on the in-estigation of I6RS 1(@' can conclude that 4hen -aluing good4ill I6RS reCuires the use
of an im,airment test( Dutch AAAB does not reCuire the use of im,airment concerning the
,rocessing of good4ill( !onseCuentl", there 4ill 3e less earnings conser-atism 4ith Dutch
accounting( Also 4hen loo2ing at the in-entories Dutch AAAB stated that In-entories ma" 3e
stated at current -alue, 4hile I6RS reCuires to state the in-entories at the lo4er of cost and net
reali;a3le -alue </BMA, #$$1=(
Im,ortant concerning this research is the defining of I6RS as common or code la4
orientated standardsI this is crucial concerning the creation of the h",otheses in the ne7t section(
5hen in-estigating the characteristics of a common la4 s"stem, 4hich ha-e 3een ,resented in
ta3le ', it seems that I6RS sho4s common la4 characteristics, and a most im,ortantl" element is
a larger demand of re,orting Cualit"( This is also im,lied 3" se-eral authors regarding this
su3Dect( Ji2e common la4 I6RS is 3ased more on ,rinci,les <mar2et03ased= than on rules
<go-ernment 3ased=, also the most im,ortant as,ect of I6RS is to gi-e a true and fair -ie4 3ased,
4ith the use of fair -alue <Geems2er2, -an der Tas #$$E=( This is also one of the common la4
characteristics <e(g( >all et al #$$1=( A3out I6RS >all et al(<#$$$, ,(+)= communicate the ne7t
statement. FKthe International Accounting Standards !ommittee <IAS!= recentl" com,leted a
set of international accounting standards 4idel" -ie4ed as reflecting a largel" common0la4
a,,roach of trans,arent, timel" disclosure(H The reasons concerning changing to I6RS is also
e7,lained 3" >all et al <#$$$=, the" mention that it is difficult concerning high Cualit" firms in
code0la4 countries to 3e a3le to reduce contracting costs through im,ro-ed financial re,orting
other than listing in common la4 Durisdiction <e(g( I6RS= and e7,osing themsel-es to common
la4 ,enalties concerning lo4 disclosure(
.3 -elated literature
The mo-ement to4ards IAS, ,redecessor of I6RS, has 3een researched 3" >arth et al(
<#$$E=( Their results suggest that IAS im,ro-es the accounting Cualit" and could e-en reduce the
costs of eCuit" ca,ital( More im,ortantl" the" conclude that in ,articular, firms that ado,t IAS
generall" sho4 less e-idence of earnings smoothing, less e-idence of managing earnings to4ards
a target, more timel" recognition of losses <4hich im,lies earnings conser-atism=, and a higher
association 4ith share ,rices( !onseCuentl", the" found e-idence that firms that ado,ted I6RS
#@
sho4 less earnings management, more earnings conser-atism, and more -alue rele-ance of
earnings, and conseCuentl" the" dra4 the conclusion that the mo-ement to4ards I6RS im,ro-ed
the accounting Cualit"(
Go4e-er in contrar" to >arth et al <#$$E=, -an Tendeloo and Vanstraelen <#$$@, ,('@@=
e7amined if Aerman com,anies that ado,ted I6RS 4ill sho4 less earnings management then
com,anies using Aerman AAAB( Their results 4ere the follo4ing. FOur results suggest that
ado,ting I6RS does not constitute a significant constraint on earnings management, as measured
3" the le-el of discretionar" accruals( On the contrar", ado,ting I6RS seems to increase the
magnitude of discretionar" accruals(H !onseCuentl", this im,lies more use e7ists of discretionar"
accruals, im,l"ing more earnings management due to I6RS( The" also conclude that more
income smoothing e7ists 3" com,anies that ha-e ado,ted I6RS( These findings contri3ute to the
current de3ate on 4hether the high Cualit" standards in countries 4ith 4ea2 in-estor ,rotection
rights are sufficient and effecti-e( The" indicate that ado,ters of I6RS cannot 3e associated 4ith
lo4er earnings management <-an Tendeloo and Vanstraelen, #$$@=(
Gellman <#$$)= e7amined the im,act of I6RS on accounting conser-atism <3alance sheet
conser-atism= 3" e7amine three cases related to three different I6RS standards( Ge made the
follo4ing conclusion. The e7amination of the three cases <related to loss carr" for4ards,
de-elo,ment costs and construction contracts= ha-e sho4n that tem,orar" conser-atism ha-e
3een ta2en into the three standards re-ie4ed <4hich are IAS '#, IAS 1* and IAS ''=(
!onseCuentl", e-en though the consistent use of conser-atism ,rinci,le is no longer ,ractica3le
in the three cases, com,anies 4ill instead a,,l" conser-atism 4hen the" need Dudgments
regarding ,ro3a3ilities and other estimates(
Jeu; and Verrecchia <#$$$= conclude that mo-ing from Aerman AAAB to IAS or U(S(
AAAB re,resents a su3stantial increase in a firm8s commitment to greater disclosure(
#
These
authors find that firms, 4hich -oluntaril" ado,t IAS or U(S( AAAB, ha-e a lo4er 3id0as2 s,reads
and higher stoc2 turno-er ratios( Go4e-er, the" found that the difference 3et4een IAS and U(S(
AAAB firms is not statisticall" significant( FIn contrast, Das2e <#$$E= fails to find a decrease in
the cost of eCuit", measured from se-eral stoc2 -aluation models concerning Aerman firms
ado,ting IAS or U(S( AAABH <Soderstrom, Sun, #$$), ,(')=(
#
The commitment to disclosure is a decision 3" a firm to disclose before it 2no4s the content of the information(
This commitment should ha-e a stronger economic conseCuence than -oluntar" disclosure, 4hich is a decision to
disclose after the firm 2no4s the content of the information and can 3e re-ersed in the future(
#E
Another im,ortant conseCuence of the mandator" ado,tion of I6RS in Euro,e is that, the
ado,tion of I6RS in the EU countries ,ro-ides a more ,o4erful setting to test the economic
conseCuences of accounting Cualit" 3ecause no4 accounting standards across EU countries are
initiall" the same <Schi,,er, #$$@=(
Go4e-er as Soderstrom and Sun <#$$), ,(1E01)= state. F5hile e7tant literature has found
a ,ositi-e im,act of I6RS ado,tion on accounting Cualit", 4e argue that one cannot sim,l"
generali;e results 3ased u,on historicall" -oluntar" I6RS ado,tions to the current EU setting,
4here ado,tion is mandator"( 5e argue that accounting Cualit" after I6RS ado,tion hinges on
three factors. '= the Cualit" of the standardsI #= a countr"8s legal and ,olitical s"stemI and 1=
financial re,orting incenti-es(H Ai-en that the Cualities of the standards are high, a countr"8s
legal and ,olitical s"stem has a large im,act on the financial re,orting incenti-es, and on the
Cualit" of financial re,orting(
Aassen and Sellhorn <#$$E, ,(#= in-estigate if the ado,tion of I6RS ensures high Cualit"(
The" com,ared I6RS 4ith Aerman AAAB and came to the follo4ing conclusion. F4e document
significant differences in terms of earnings Cualit". I6RS firms ha-e more ,ersistent, less
,redicta3le, and more conditionall" conser-ati-e earnings(H Ta2en together, the" -ie4 these
results as indicating that the earnings of I6RS firms are of higher Cualit"( The I6RS standards
must 3e of high Cualit" in order to result in com,ara3ilit" and trans,arenc"(
!hristensen et al( <#$$*= e7amine 4hether the ado,tion of I6RS leads to accounting
Cualit" im,ro-ements( The" argue that there are firms that ha-e no incenti-es to engage in less
earnings management and more timel" loss recognition su3seCuent to I6RS ado,tion( >ecause
such attem,ts 4ill ha-e limited effect concerning firms 4ithout incenti-es to com,l", the" argue
that the o3Decti-e of im,ro-ing the accounting Cualit" concerning all firms cannot 3e achie-ed 3"
mandating higher Cualit" accounting standards(
. 3#)ot"esis
After ha-ing ,erformed an e7tensi-e re-ie4 of the literature and e7,laining the theor"
regarding conser-atism, the h",othesis regarding the relationshi, 3et4een earnings
conser-atism, timeliness, and I6RS can 3e formulated( 5hat the literature re-ie4 ,ro-ided 4as
e-idence that suggested that I6RS 4as more common la4 3ased( !onseCuentl", the first
h",othesis 4ill 3e as follo4ed.
#)

&yothesis '7
0utch listed com#anies show significantly more timely economic income in accounting income
after the ado#tion of I%&'.
>ased on this h",othesis 4ill 3e measured in 4hich 4a" in the financial statements
timel" e-ents on the stoc2 mar2et 4ill 3e re,resented(
The literature stud" also ,ro-ided e-idence that common la4 3ased s"stems sho4 more
earnings conser-atism than code la4 s"stems( I6RS is rooted in common la4, 4hich leads to the
ne7t h",othesis.
&yothesis (:
3fter the ado#tion of I%&'+ 0utch listed com#anies reflect significantly more timely negative
economic income related to the #ositive economic income
.$ Summar#
This section has e7,lained the ,ur,oses and the conseCuences of the introduction of
I6RS( A closer loo2 4as ta2en at the conseCuences of I6RS on the earnings conser-atism(
Related studies did mention something a3out conser-ati-e accounting after the introduction of
I6RS( No definiti-e conclusion can 3e dra4n a3out the change in accounting ,olicies and
earnings conser-atism, 3ut it can 3e argued that I6RS has more common la4 characteristics(
!onseCuentl", according to the ,re-ious section, I6RS 4ill ,ro3a3l" lead to more earnings
conser-atism( This 4as also stated 3" se-eral studies as e7,lained in this section( Go4e-er, there
has not 3een a stud" in-estigating the ado,tion of I6RS on earnings conser-atism( After the
de-elo,ed of the h",othesis, to in-estigate these h",otheses in the ne7t cha,ter the research
design 4ill 3e de-elo,ed(
#*
5 Research Design
In the ,re-ious cha,ters a literature stud" has 3een ,erformed( >ased on the literature
re-ie4 ,erformed in the ,re-ious sections to in-estigate the main research Cuestion of this stud"
the h",otheses 4here de-elo,ed( !onseCuentl", in this cha,ter the em,irical ,art of the research
4ill 3e ,ro-ided( 6irst the o3Decti-e 4ill 3e ,resented, ne7t the model, the data sam,le and the
e7,ectations 4ill 3e ,resented(
$.1 Objective
The o3Decti-e of this research is to e7amine 4hether earnings Cualit", in this case
measured 3" the degree of the use of earnings conser-atism in the Netherlands, the financial
re,orting en-ironment has 3een changing due to I6RS( As Deegan <#$$1= e7,lained,
conser-atism is an attri3ute of accounting Cualit"( Measuring the degree of the used
conser-atism can sho4 the effect of the changes in the earnings Cualit" and in the re,orting
Cualit" after a change in the accounting standards( Alternati-el", 4hich accounting standards
deli-er more Cualit"U This research aims to ,ro-ide em,irical e-idence that the contri3ution of
I6RS has had a ,ositi-e influence on the use of earnings conser-atism(
$.2 -esearc" a))roac"
Em,irical research is research that is 3ased on e7,erimentation or o3ser-ation, i(e(
e-idence( Such research is often conducted to ans4er a s,ecific Cuestion or to test a h",othesis(
In ,ractice, the accumulation of e-idence concerning or against an" ,articular theor" in-ol-es a
,lanned research design(
A 3enchmar2 creates the ,ossi3ilit" to e-aluate and to com,are the o3tained results(
Using a 3enchmar2 can 3e e7ecuted 3" com,aring data 4ith data of other firms o-er the same
,eriod <or cross0sectional anal"sis= or 4ith data of the own firm o-er ,receding ,eriods <or time0
series anal"sis=( 5ithin the conte7t of this research, concerning each se,arate selected firm a
time0series anal"sis 4ill 3e conducted, 3" com,aring the after0I6RS figures 4ith the ,re0I6RS
figures( !onseCuentl", the 3enchmar2 data co-er different ,eriods(
#%
As e7,lained 3" Marshall and !rossman <'%*$= t4o general t",es of research a,,roaches
e7ist, 3eing the $uantitative and the $ualitative research a,,roaches( In their research, Marshall
and !rossman summari;ed in a ta3le the main differences 3et4een these a,,roaches( The main
differences 3et4een these t4o t",es of research are that Cualitati-e research a,,roaches are more
su3Decti-e and tries to inter,ret the date( 5hereas Cuantitati-e research a,,roaches, are more
o3Decti-e and ha-e more a ,redicti-e -alue concerning the data(
Vualitati-e and Cuantitati-e research a,,roaches are different in a,,roach( The follo4ing
is deri-ed from Marshall and Rossman <'%*$=(
8uantitative7
>egins 4ith h",otheses and theories
Mani,ulation and control
Uses formal instruments
E7,erimentation
Deducti-e
!om,onent anal"sis
See2s consensus, the norm
Reduces data to numerical indices
A3stract language in 4rite0u,
8ualitative7
Ends 4ith h",otheses and grounded theor"
Emergence and ,ortra"al
Researcher as instrument
Naturalistic
Inducti-e
Searches concerning ,atterns
See2s ,luralism, com,le7it"
Ma2es minor use of numerical indices
Descri,ti-e 4rite0u,
1$
!om,aring the 3efore stated o3Decti-e of this research to signaled the characteristics of the
Cualitati-e and the Cuantitati-e research a,,roaches a conclusion can 3e ,resented( This research
aims to ,erform an em,irical research -ia com,onent anal"sis( This research has started 4ith
theories after 4hich h",otheses ha-e 3een formulated( !onseCuentl", the research that 4ill 3e
,erformed is a Cuantitati-e one( According to Verschuren and Doore4aard <#$$), ,(#%#= an
e7amination03ased research is often used concerning em,irical research( >ecause ,articular
numerical relations are 3eing in-estigated, conseCuentl" ,ro-iding additional e-idence, this 4ill
3e a Cuantitati-e research( (
According to Verschuren and Doore4aard <#$$)=, a Cuantitati-e research includes t4o
different t",es of research, a sur-e", and an e7,eriment( Sur-e"s are studies that use
Cuestionnaires or inter-ie4s to collect data( The goal is to estimate the characteristics of a large
,o,ulation 3" using sur-e"s of a smaller sam,le of that ,o,ulation( E7,eriments are test under
controlled conditions used to demonstrate a 2no4n truth, e7amine the -alidit" of a h",othesis, or
determine the efficac" of something ,re-iousl" untried( The t",e of Cuantitati-e research this
research 4ill 3e 3ased on is an e7,eriment( >ecause earnings conser-atism cannot 3e determined
3" a Cuestionnaire or inter-ie4, the research does not fit a sur-e"( >ecause it 4ill 3e in-estigated
if the introduction of I6RS <cause= has an effect on the use of earnings conser-atism, this
research has more a cause0and0effect relationshi,( !onseCuentl", this stud" 4ill 3e an
e7,eriment(
$.3 -esearc" !et"od
>asu <'%%)= used the rate of stoc2 returns to found e-idence concerning the use of
conser-atism reflected in the earnings of non0financial US firms( >ased on the ,re-ious
,aragra,h it 4as concluded that this research is an e7,eriment( This 4ill 3e ,erforming 3"
measuring the EarningsNStoc2 returns relation( As e7,lained in the literature re-ie4 e-idence
4as found that code la4 countries sho4 less timel" economic income in accounting income(
This e-idence e7,lains ho4 fast timel" e-ents on the stoc2 mar2et 4ill 3e re,resented in the
financial statements(
1'
In order to measure the timeliness of the economic income the formula of >all et al(
<#$$$=, 3ased on their theor" a3out the relation 3et4een the economic and the accounting
income, 4ill 3e used.
<'= NI
it
, 9
.
/ 9
1
/ &
it
/ 1
it
5here NI
it
and &
it
res,ecti-el" denote accounting earnings "ield <net income scaled 3"
"ear0end mar2et ca,itali;ation= and the annual rate of return of firm i concerning the fiscal "ear t(
In this model, the rate of return is used as a ,ro7" of the ne4l" created economic -alue of the
firm during the related fiscal "ear( >" stud"ing the lin2 3et4een the accounting -alue and the
economic -alue, the ca,acit" of the accounting earnings to reflect the intrinsic -alue of the firm
4ill 3e e7,lored( The R
#
of the regression is used as a ,ro7" to measure the e7tent to 4hich
accounting income in the current ,eriod <NI= incor,orates economic income in the current ,eriod
<&=, i(e( the timeliness ,ro,ert" of accounting income(
>ecause the timeliness and conser-atism are ca,tured in this model, to measure the use of
earnings conser-atism the 3efore ,resented formula of >all et al( <#$$$= 4ill 3e used( 6ollo4ing
>asu <'%%)=, the" ha-e incor,orated conser-ati-e as"mmetr" in accounting income timeliness 3"
modif"ing concerning as"mmetric incor,oration of negati-e economic income.
<#= NI
it
, -
.
/ -
1
&0
it
/ -
2
&
it
/ -
3
&
it
&0
it
/ 1
it
As signaled 3efore, NI
t
, net income scaled 3" "ear0end mar2et ca,itali;ation( &
t
is stoc2
returns concerning "ear t and 0&
t
is a dumm" -aria3le 4hich eCuals one if &
t
P $ and ;ero
other4ise( DR
t
is used as a ,ro7" concerning good ne4s -ersus 3ad ne4s( -
3
is the as"mmetric
timeliness coefficient( The reason choosing this formula is that accounting income is s,ecified as
an inde,endent -aria3le( !onseCuentl", the need concerning nois" earnings e7,ectations is
a-oided( The inde,endent -aria3le <annual stoc2 return= is relati-el" free of short0term
microstructure, liCuidit", or mis,ricing elects( An additional ad-antage of the s,ecification is that
it incor,orates the fundamental tenets of accounting income recognition( In ,articular, it
incor,orates lags that arise from the demand concerning an inde,endent income measure, and
1#
,iece4ise linearit" allo4s stud"ing the timeliness, or the use of earnings conser-atism 3efore and
after the ado,tion of I6RS( The more timel" the negati-e ne4s, the more earnings conser-atism
e7ists(
$. Sam)le Selection
>ecause this research in-estigates if the introduction of I6RS 4ill ha-e an influence on
the degree of the use of earnings conser-atism in the Netherlands, the sam,le 4ill contain Dutch
com,anies( >ecause the ,ri-ate com,anies are not o3liged to com,l" 4ith the I6RS regulations,
these com,anies 4ill 3e stoc2 e7change Cuoted com,anies( !onseCuentl", the ,ri-ate com,anies
4ill 3e e7cluded from the sam,le(
The sam,le contains com,anies on the AEW inde7 <##=, on the Midca, <AMW= inde7
<#1=I conseCuentl", this is a total sam,le of +@ different com,anies( !oncerning the total list of
com,anies see a,,endi7 >( Due to the s,ecific accounting regulations and other ,eculiarities
concerning that ,articular industr", the financial institutions and the insurance com,anies ha-e to
3e eliminated( 6urthermore, com,anies that ha-e generated their financial statements under I6RS
concerning a num3er of "ears ,receding the com,ulsor" im,lementation in #$$@, the so0called
earl" ado,ters, in addition 4ill 3e e7cluded( The so0called late ado,ters are e7cluded as 4ell( If
the" are included, the differences 3et4een the reCuirements 4ill cause a distortion of the results
that 4ill arise 3ased on the sam,le set(
This stud" in-estigates the 3efore and the after ,eriod of I6RS( !onseCuentl", the ,eriod
of o3ser-ation 3efore introduction 4ill 3e from #$$#0#$$+, a ,eriod of three "ears( !oncerning
the ,eriod after the I6RS ado,tion onl" the ,eriod #$$@0#$$) 4ill 3e used, in addition im,l"ing
a ,eriod of three "ears( >ecause the credit crunch, 4hich is raised during that "ear, the "ear #$$*
4ill not 3e incor,orated into the sam,le( >ecause of the credit crunch the information of that
"ear ma" not ,resents an accurate -ie4 and could ,resents a distorted -ie4(
!onseCuentl", the firms, 4hich can 3e included in the sam,le, need to incor,orate the
ne7t criteria. T"e firms on 4'5 and 4!5 /e(cluding earl#6late ado)ters and financial and
insurance com)anies0 *it"in t"e #ear 2772 need to "ave been unceasingl# 1uoted on t"e
4'5 or 4!5 u) to and including #ear 2778.
11
$.$ %ata collection
!oncerning the research that 4ill 3e ,erformed in the ne7t cha,ter, se-eral data is
needed( The -aria3les needed concerning the e7ecution of the research ha-e 3een ,resented in
,aragra,h @(1( !oncerning the -aria3le N, the official closing ,rice of the firms and the earnings
,er share <EBS= are needed( The EBS 4ill 3e collected from the data3ase 5orldsco,e( The data
concerning the annual closing ,rices of the firms are ,ro-ided 3" Datastream(
6urthermore, 5orldsco,e also ,ro-ides the ne7t -aria3le. Accstand6ollo4ed( This
-aria3le sho4s the accounting standards each com,an" used( In this case, this 4ill 3e Jocal
AAAB or I6RS( To determine 4hether earl" or late ado,ters of I6RS e7ist, this is essential(
$.& '()ectations
>ased on the ,rior research e7,laining that common la4 countries sho4 more earnings
conser-atism than code la4 countries it can 3e e7,ected that the introduction of I6RS 4ill ha-e a
significant effect on the use of earnings conser-atism in the Netherlands( !haracteristics of 3oth
legal s"stems are commented and the Netherlands is grou,ed as a code la4 countr"( The I6RS
has mostl" signs of a common la4 s"stem( !onseCuentl", 4hen I6RS is ado,ted 3" Dutch stoc2
e7change Cuoted com,anies a closer ste, 4ill 3e ta2en to4ards a common la4 a,,roach( >ased
on the considered theories and studies, 4here common la4 countries sho4 more earnings
conser-atism than code la4 countries, the ,rediction is that Dutch com,anies to 3e engaged
significantl" more in the use of earnings conser-atism after the introduction of I6RS(
5ith res,ect to timeliness, lin2ing to the first h",othesis, it is e7,ected that this 4ill 3e
im,ro-ed, in addition 3ecause of the same reasons as stated 3efore( Brior research indicates that
the demand concerning timel" information in the annual accounts is less im,ortant in code la4
countries( Through the mo-e to a more common la4 a,,roach, it is e7,ected that more timel"
recognition stoc2 e-ents in the financial statements of com,anies 4ill 3e ,resented(
>ecause the earnings Cualit" is ,ro7ies 3" the earnings conser-atism, o-erall it is
e7,ected that, the Cualit" of the earnings 4ill 3e im,ro-ed( This 4ill enhance useful financial
information(
1+
$.8 Summar#
This cha,ter ,resented the research design on 4hich this research is 3ased( This research
aims to ,ro-ide e-idence that a relationshi, e7ists 3et4een the introduction of I6RS and the
degree of the used earnings conser-atism( As e7,lained in this cha,ter, this research is a
Cuantitati-e research, and 4ithin this t",e of research, an e7amination 4ill ,erform(
!onseCuentl", to ,ro-ide e-idence that the formulated h",otheses ma" acce,t, statistical
methods should 3e used(
>ased on the research ,erformed 3" >asu <'%%)=, to ,ro-ide the e-idence, a model of
>all et al <#$$$= 4ill 3e used( This cha,ter e7,lained this model( In order to ans4er the main
research Cuestion of this research, to ,erform the e7,eriment and ,ro-ide em,irical results in the
ne7t cha,ter the model 4ill 3e used.
1@
6 Research Analysis and Results
The ,re-ious cha,ter e7,lained the research design( The general sam,le, the
e7,ectations, and the methods ha-e 3een e7,lained( This cha,ter 4ill e7,lain the em,irical ,art
of this research( 6irst, the definite sam,le 4ill 3e ,resented as 4ell as the results of the research(
>ased on that information the main research Cuestions can 3e ans4ered( >ased on this ans4er,
the conclusion can 3e formulated(
&.1 %efinite Sam)le
The a,,endices > and ! ,resent the list of com,anies that in this research ha-e 3een
used( A,,endi7 > contains the list of all the AEW and AMW com,anies that ha-e 3een
unceasingl" Cuoted from the "ear #$$# u, to and including the "ear #$$)( A,,endi7 ! sho4s the
full list of the com,anies included in the sam,le(
The definite sam,le concerning this research contains 1# firms of 4hich ') are from the
AEW and the remaining '@ are from the AMW <Mid2a,=( >ecause the" are financial or insurance
com,anies, four com,anies ha-e 3een e7cluded(
&.2 T"e relation bet*een 4ccounting and 'conomic Income
(.2.1 :re; and :ost;I%&'
As e7,lained in cha,ter + and @ the timeliness of the economic income can 3e measured
using the formula of >all et al <#$$$=( This is measured 3" the relation 3et4een economic and
accounting income( This relation is e7amined 3" the RX of the regression of formula '( Ta3le E('
,resents the regression results of this measure(
4ccounting Standard -9
Dutch )AA* +(,,(-(,,./ $,'+%
IFRS +(,,0-(,,1/ $,'*$
Table &.1
As ,resented in ta3le E(' the RX of the ,re0I6RS ,eriod is $,'+%( The RX of the ,ost0I6RS
,eriod is $,'*$( This increase in RX suggests an increase in the e7tent to 4hich accounting
income in the current ,eriod <NI= incor,orates economic income in the current ,eriod(
1E
!onseCuentl", 3ecause of the introduction of I6RS the timeliness of economic earnings in
relation 4ith accounting income has im,ro-ed( This suggests that timel" e-ents on the stoc2
mar2et 4ill 3e faster re,resented in the financial statements( This ,ro-ides e-idence in fa-or of
h",othesis '(
(.2.2 <ransition #eriod 2..!;2.."
As the 3efore stated results of ,re0I6RS and ,ost0I6RS ,ro-ide e-idence in fa-or of
h",othesis ', it seems interesting to anal";e the transition from Dutch0AAAB to I6RS( This
transition "ear is from #$$+ to #$$@(
:ear -9
(,,. $,'E#
(,,0 $,#%)
Table &.2
As ,resented in ta3le E(# in addition the RX in the transition ,eriod increased from $('E#
to $(#%)( This data suggests that timel" e-ents on the stoc2 mar2et 4ill 3e faster re,resented in
the financial statements in the transition "ear(
(.2.3 =early data
Data has 3een ,ro-ided for the ,re0I6RS ,eriod and the ,ost0I6RS ,eriod, as 4ell as the
transition "ear <#$$+0#$$@=( Interesting is to anal";e the trend of RX o-er the 4hole sam,le
,eriod( 6igure E(' re,resents this data.
1)
.igure &.1
>ased on the content of figure E(' can concluded that concerning the "ears #$$# to #$$+
the timeliness of economic earnings regarding to accounting earnings declined more e-er" "ear
u, to and including #$$+( After the introduction of I6RS in #$$@, can 3e concluded that the
timeliness of economic earnings regarding to accounting earnings significantl" increased u, to
and including #$$E( The "ear #$$E is the ,ea2 of the sam,le, 4ith a timeliness of @+T(
Go4e-er, the change in RX from the "ear #$$E to #$$) sho4s a large decline of RX( >ecause the
com,anies could ha-e recogni;ed this earlier <in #$$)= and could ha-e considered this
,henomenon 4ould occur, this large decline in the last "ear could ,ro3a3l" 3e allocated to the
credit crunch that occurred in #$$*(
23(3. Ans4er to hyothesis
5ith the data ,resented 3efore the ans4er to the first h",othesis can 3e formulated, the
first h",othesis formulated in cha,ter + 4as;
>0utch listed com#anies show significantly more timely economic income in accounting income
after the ado#tion of I%&'.?
As signaled 3efore, 3ecause of the introduction of I6RS the timeliness of economic
earnings in relation 4ith accounting income has im,ro-ed( This 3ecause an increase in RX, e7ists,
4hich suggests an increase in the e7tent to 4hich accounting income in the current ,eriod <NI=
incor,orates economic income in the current ,eriod( This reali;ed e-idence in fa-or of the first
h",othesis(
1*
&.3 Conditional Conservatism
(.3.1 :re; and :ost;I%&'
To e7amine if the Dutch stoc2 e7change Cuoted com,anies reflect significantl" more
timel" negati-e economic income related to ,ositi-e economic income after the ado,tion of
I6RS, the >all et al <#$$$= regression needs to 3e used( To confirm an increase or decrease e7ists
in the used earnings conser-atism the Y
#
and Y
1
<of formula '= need to 3e e7amined( Earnings
conser-atism can 3e recogni;ed if Y
#
Q Y
1
R Y
#
, this suggests that the use of earnings conser-atism
can 3e recogni;ed 4hen Y
1
R$(
4ccounting Standard <3 Sig.
Dutch )AA* $(1)$ $($$$
IFRS $(1++ $($')
Table &.3
6irst, the ,re0 and ,ost0I6RS ,eriod 4ill 3e anal";edI the significant data is summari;ed
in ta3le E(1( >ased on this data can 3e concluded that in 3oth ,eriods, the ,re0 and ,ost0I6RS, the
Y
1
is larger than ;ero( >oth ,re0 and ,ost0I6RS are significant at $,$$ and $,$$') res,( This
indicates that the timeliness of good ne4s, 4hich is re,resented 3" ,ositi-e stoc2 returns, is less
than the timeliness of 3ad ne4s, 4hich is re,resented 3" negati-e stoc2 returns( As signaled
3efore the use of earnings conser-atism is re,resented 3" Y
1
, 4hich is larger than ;ero for 3oth
,eriods( This indicates that 3ad ne4s is reflected faster in accounting earnings than good ne4s,
4hich indicates that 3ad ne4s is recogni;ed in earnings on a timelier 3ase than good ne4s(
Go4e-er, 4hen anal";ing 3oth ,eriods se,aratel" can 3e concluded that the ,ost0I6RS
sho4s less earnings conser-atism than the ,re0I6RS ,eriod( This is 3ecause the ,ost0I6RS ,eriod
has a smaller Y
1
than the ,re0I6RS ,eriod, im,l"ing a timelier recognition of good ne4s 4ith
res,ect to 3ad ne4s( This difference is not a -er" large difference, ho4e-er it is still less(
(.3.2 <ransition #eriod 2..!;2.."
To e7amine 4hat causes these results, a "earl" data 4ill 3e dee,er anal";ed( >ecause this
4as the "ear concerning stoc2 e7change Cuoted com,anies in the EU I6RS 3ecame mandator",
first, the data of the transition "ear <#$$+ to #$$@= 4ill 3e anal";ed(
1%
:ear <3 Sig.
(,,. $(1$@ $('#1
(,,0 $(*#+ $($'#
Table &.
>ased on the data in ta3le E(+ can 3e concluded that from #$$+ to #$$@ the Y
1
increased, from
$(1$@ to $(*#+ res,( This 4ould im,l" that a timelier recognition e7ists of 3ad ne4s, re,resented
3" negati-e stoc2 returns, 4ith res,ect to the recognition of good ne4s, re,resented 3" ,ositi-e
stoc2 returns( Ne7t, this im,lies that from the "ear #$$+ to #$$@ the use of earnings conser-atism
increased(
(.3.3 Yearly data
.igure &.2
>ecause no definite conclusion "et e7ists, ne7t, the "earl" data 4ill 3e further e7amined( >"
e7amining, the "earl" data can 3e anal";ed in 4hich 4a" the "earl" -
3
e-ol-es, and in 4hich
4a" the "ears react relati-e to each other( The data is re,resented in figure E(#(
>ased the "earl" data the ne7t conclusion can 3e dra4n( 6irst, can 3e noticed that in e-er"
"ear in the sam,le the -
3
is larger than ;ero, as stated 3efore earnings conser-atism e7ists if -
3
R
$( This im,lies that in each "ear of the sam,le, the use of earnings conser-atism can 3e
recogni;ed(
+$
5hen further anal";ing, can 3e recogni;ed that the "ear #$$# 4ith res,ect to other "ears,
has a Cuite large -
3
<sig( $,$$= im,l"ing a large amount of the use of earnings conser-atism in
that ,articular "ear( 5hen anal";ing the data of the "ear #$$# in this sam,le ha-e 3een used, it
can recogni;ed that in com,arison to the B of "ear #$$' the closing ,rice <B= 4as smaller( The
causes that the "ear #$$# to standout so much in com,arison 4ith the other "ears, 3ased on the
,re-ious theor" is not clear( Go4e-er, 4hat can 3e recogni;ed 3ased on the "ear #$$1 u, to and
including #$$E, the -
3
trend is as e7,ected( This is 3ecause after the introduction of I6RS the -
3
starts to increase concerning # "ears in com,arison to the # "ears 3efore #$$@( Again, ho4e-er
com,ared to the "ear 3efore in #$$) the -
3
decreases, the causes concerning this decrease are not
e7actl" clear( Go4e-er, this finding could 3e contri3uted to the credit crunch ,henomenon that
,resented itself a "ear later( The com,anies could ha-e recogni;ed this ,ro3lem and in order to
deal 4ith the u,coming ,ro3lem choose different tactics
(.3.! 3nswer to hy#othesis
>ased on the data ,resented 3efore the second h",othesis can 3e ans4ered( The second
h",othesis formulated in cha,ter + is7
>3fter the ado#tion of I%&'+ 0utch listed com#anies reflect significantly more timely negative
economic income related to the #ositive economic income.?
As e7,lained 3efore the data contains unfa-ora3le e-idence concerning the second
h",othesis( 5hen anal";ing 3oth ,eriods se,aratel" it can 3e concluded that the ,ost0I6RS
sho4s less earnings conser-atism than the ,re0I6RS ,eriod, im,l"ing a timelier recognition of
good ne4s 4ith res,ect to 3ad ne4s( This difference is not a -er" large difference, ho4e-er it is
still less(
&. Summar#
This cha,ter ,ro-ides the results of the em,irical ,art of this research( The results im,l"
the timeliness of earnings 3et4een the ,re0 and ,ost0I6RS ,eriod has increased( 6urthermore, the
results ,ro-ided e-idence that the com,anies in the sam,le sho4 the use of earnings
conser-atism in the sam,le ,eriod of #$$# u, to and including #$$)( In addition, not much
difference in the use of earnings conser-atism in the ,re0 and in ,ost0I6RS ,eriod has 3een
detected(
+'
The ne7t cha,ter 4ill ,ro-ide the o-erall summar" and the conclusions, the limitations
and the recommendations concerning further research.
+#
8 Summar# and Conclusions
This cha,ter 4ill ,ro-ide the summar" of this research( This 4ill ,erformed 3" ,ro-iding
ans4ers to the su30Cuestions formulated in cha,ter '( In addition, this cha,ter 4ill ,ro-ide the
conclusion, this 4ill reali;ed 3" ans4ering the main research Cuestion formulated in cha,ter '(
6inall", this cha,ter contains he limitations of this research and recommendations concerning
further research(
8.1 Summar#
Ans4er to su30Cuestion ', What is the content of the term (earnings) conservatism?
!onser-atism can 3e defined as the accountant8s tendenc" to reCuire a higher degree of
-erification concerning recogni;ing good ne4s in earnings than concerning recogni;ing 3ad
ne4s( !onseCuentl", earnings are recogni;ed 4hen the" are reali;ed 4hile losses are recogni;ed
immediatel"( 6urthermore, conser-atism can 3e s,lit into 3alance sheet conser-atism and
earnings conser-atism( >alance sheet conser-atism <or unconditional conser-atism= can 3e
defined as the e7istence of a ,ersistent understatement of the 3oo2 -alue figure 4ith res,ect to
the mar2et8s -aluation of the firm( This im,lies that the mar2et0to03oo2 ratio 4ill 3e greater than
one( 5hile earnings conser-atism <or conditional conser-atism= relati-e to good ne4s can 3e
defined as a timelier recognition of 3ad ne4s in earnings( Institutional factors as contracting,
shareholder litigation, ta7ation, and accounting regulation are re,orted to affect the le-el of the
used conser-atism(
Ans4er to su30Cuestion #, in which way can the use of conservatism be measured? Three
t",es of measures e7ist to in-estigate the use of conser-atism. the Net asset measure <'=, the
EarningsNStoc2 returns relation measure <#= and the EarningsNAccrual measure <1=
The three t",es of measures 4ill 3e shortl" e7,lained ne7t.
'= Accounting conser-atism is measured 3" the -aluation model estimations and 3" time0
series estimations of the relation 3et4een the se-eral accounting -aria3les, 4hich are the
in,uts to the -aluation model( !onser-atism e7ists if the mar2et -alue of the firm e7ceeds
on a-erage the 3oo2 -alue, i(e( if the mar2et to 3oo2 ratio is consistentl" greater than one(
#= >asu <'%%)= ,redicts and found that earnings res,ond more to negati-e returns <a ,ro7"
concerning 3ad ne4s= than to ,ositi-e returns <a ,ro7" concerning good ne4s=( In short is
+1
inter,reted as the accounting earnings sho4 3ad ne4s, measured 3" negati-e stoc2
returns, more Cuic2l" than good ne4s, 4hich is measured 3" ,ositi-e stoc2 returns(
1= The As"mmetric Accrual to !ash flo4 measure <AA!6= can 3e Cualified as the non0
stoc20mar2et -ersion of the >asu8s measure( The >asu measure uses the stoc2 returns as
the ,ro7" concerning economic ne4s, 4hile the AA!6 measure uses the cash flo4 of the
current ,eriod as the ,ro7"(
The first and the third measure are used to measure the 3alance sheet conser-atism( The
second measure ho4e-er measures earnings conser-atism and in this research has 3een used to
measure the use of earnings conser-atism in The Netherlands(
Ans4er to su30Cuestion 1, what does the legal system of the Netherlands loo lie? The
literature recogni;es that common0la4 countries are oriented to4ards fair ,resentation,
trans,arenc", and full disclosure <2no4n as the Anglo0Sa7on model=( 5hereas in code la4
countries, 3an2s or go-ernments are, the main sources of financing and a ,reference e7ists of
creditor ,rotection <2no4n as the !ontinental model=( 6inancial re,orting, in these countries, is
characteri;ed 3" lo4 disclosures and an alignment of financial accounting 4ith the ta7 la4s( In
addition, go-ernments ha-e a strong influence in setting accounting standards( It seems that the
Netherlands e7hi3its some of the ,ro,erties of a common la4 countr"( Go4e-er 3ased on se-eral
characteristics, the Netherlands is Cualified as a code la4 countr"( The characteristics are
5ea2er eCuit" mar2etI !ore, insider shareholdersI a Small auditing ,rofessionI and Ta7
dominating accounting rules(
Ans4er to su30Cuestion +, @ow is the legal systems related to the use of conservatism?
Brior research confirms that com,ared to the code la4 countries the use of earnings conser-atism
in common la4 countries is higher( !ode la4 countries ho4e-er sho4 more use of 3alance sheet
conser-atism( The relation 3et4een the 3alance sheet and the earnings conser-atism is that
earnings conser-atism decreases 4ith the use of the 3alance sheet conser-atism( Im,l"ing that
the Netherlands should sho4s less earnings conser-atism <com,ared to common la4 countries=
as it in this research has 3een Cualified as a code la4 countr"(
Ans4er to su30Cuestion @, 5hat are the #ur#ose and the conse$uences of I%&'? The
,ur,ose of I6RS 4as to ensure trans,arenc"I relia3ilit" and com,ara3ilit" of the financial
statements 3" im,ro-ing the Cualit" of re,orting in order to lo4er ,re,aration costs, lead to more
effecti-e in-estment decisions and reduce the cost of ca,ital( In addition to these, the
++
im,lementation intended to create a single EU mar2et( >ecause I6RS and Dutch AAAB are
3ased on different ,hiloso,hies, the ado,tion of I6RS has conseCuences concerning the
Netherlands( I6RS is concentrated on eCuit" holders8 ,rotection, 4hile Dutch AAAB ,rotects
de3t holders( 6urthermore, I6RS em,lo"s fair -alue accounting, 4hile the accounting under the
Dutch standard utili;es historical cost accounting(
Ans4er to su30Cuestion E, In which way is I%&' related to the use of conservatism?
Im,ortant concerning this research is the defining of I6RS as common or code la4 orientated
standards( 5hen loo2ing at the characteristics of a common la4 s"stem it seems that I6RS sho4s
common la4 characteristics, most im,ortantl" a larger demand of re,orting Cualit"( Ji2e
common la4 I6RS is 3ased more on ,rinci,les <mar2et03ased= than on rules <go-ernment 3ased=,
in addition the most im,ortant as,ect of I6RS is to ,u3lish a true and fair -ie4, 4ith the use of
fair -alue(
8.2 Conclusion
As stated in the o3Decti-e of this research in cha,ter one, the o3Decti-e is to e7amine the
earnings Cualit" ,ro7ies 3" the use of earnings conser-atism in the Netherlands 4here financial
re,orting en-ironment has 3een changed due to I6RS( The earnings Cualit" is often associated
4ith the use of conser-ati-e accounting <4hich conseCuentl" is an accounting characteristic=(
The timeliness of the income recognition refers to the e7tent that current earnings reflect -alue
rele-ant information(
The research Cuestion formulated in the introduction of this research 4as.
What influence does the use of IFRS have on the timeliness of the reorted net income and
of the degree of the use of earnings conservatism!"
This Cuestion can 3e s,lit into t4o ,arts, the first ,art 3eing the timeliness of the re,orted
net income and the second ,art is the degree of the use of earnings conser-atism( >ased on the
research ,erformed the ans4er to the first ,art is the ne7t( The results ,ro-ided e-idence that the
RX increased( This increase in RX suggests that an increase e7ists in the e7tent to 4hich
accounting income in the current ,eriod <NI= incor,orates economic income in the current
,eriod( !onseCuentl", 3" the introduction of I6RS the timeliness of economic earnings in
+@
relation 4ith accounting income has im,ro-ed( 5hich ,ro-ides e-idence in fa-or of the first
h",othesisU
The second ,art of the main research Cuestion 3ased on the ,re-iousl" ,erformed
research has a more com,licated ans4er( The results suggested that earnings conser-atism has
3een ,resent in e-er" "ear of the sam,le( It can 3e further concluded that the "ears #$$1 u, and
until #$$E ha-e an increasing trend in conser-atism that could 3e contri3uted to introduction of
I6RS( Go4e-er, #$$# sho4s an e7treme large -
3
concerning the other "ears in the sam,le, the
Cuestion is 4hat causes this ,henomenon( 5hat finall" can 3e concluded is that no reaction
e7ists of the introduction of I6RS on the use of earnings conser-atism( This is 3ased on the
findings in the research that sho4 that the -
3
did not reall" change in the ,re0 and ,ost0I6RS
,eriod( This in addition im,lies that 3ecause of the introduction of I6RS the use of conser-atism
did not significantl" decline as 4ell( This ,ro-ides e-idence against the second h",othesis(
8.3 ,imitations and -ecommendations
>asu <'%%)= 4as the first to stud" conditional conser-atism( Since then, the
as"mmetric timeliness model is a 4idel" a,,lied measure of conditional conser-atism in the
accounting research <e(g( >all et( al <#$$$=, Aarcia Jara and Mora <#$$@=, Bae <#$$)=,
Ro"cho4dhur" and 5atts <#$$)= and /an2aan,aa <#$$*==( 5hile the >asu model creates
im,ortant contri3utions to the accounting literature, some ,ro,erties in the >asu model e7ist that
are not 4ell understood 3" accounting researchers <e(g Dietrich et al( #$$) and ?ar-a #$$*=( The
main message 3ased on these studies is that the use of aggregated earnings as the de,endent -aria3le
in the >asu model ma" ,roduce 3iased measures of conditional conser-atism( This 3ias arises mainl"
from the as"mmetric correlation 3et4een cash flo4s and contem,oraneous stoc2 returns( Go4e-er,
>all and /othari <#$$)= argue that in ,ractice this is a minor ,ro3lem 4hen fiscal0"ear stoc2
returns are used to adDust accounting income(
R"an <#$$E= argues that, des,ite the limitations documented in the literature, as"mmetric
timeliness is the most direct conseCuence of conditional conser-atism( !onseCuentl",
as"mmetric timeliness should retain its ,rimac" in the literature in-estigating conditional
conser-atism( According to S2erratt <#$$@=, measuring the use of conser-atism 4ill reali;es a
more accurate result 4hen the earnings and the accruals are se,aratel" in-estigated(
!onseCuentl", ,otentiall" more ,o4erful methods concerning measuring accounting
+E
conser-atism can 3e de-elo,ed 3" using information a3out s,ecific accruals( 6uture research can
more dee,l" in-estigate 4hich factors influence the o3ser-ed as"mmetr" in cash flo4s(
In addition, the data of the "ear #$$* has e7cluded ho4e-er, the data of #$$) could ha-e
3een contaminated 3" the credit crunch( A final recommendation is to ,erform this stud" o-er a
fe4 "ears from no4 again so the sam,le ,eriod 4ill 3e longer and conseCuentl" the research 4ill
ha-e more data(
+)
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Ausiness %inance D 3ccounting+ Vol( 1+, No( @0E, ,,( E*'0)$+
Bo,e, B(6( and M( 5al2er <'%%%=, International Differences in the Timeliness, !onser-atism, and
!lassification of Earnings, Bournal of 3ccounting &esearch+ 1), ,,( @10*)
Rade3augh, J(G(, S(?( Ara" and E(J( >lac2 <#$$E=, International 3ccounting and multinational
enter#rises, E
th
edition, ?ohn 5ile" Sons, IN!
Ro"cho4dhur", S( and R(J( 5atts <#$$E=, As"mmetric timeliness of earnings, mar2et0to03oo2
and conser-atism in financial re,orting, Bournal of 3ccounting and Cconomics, Vol( ++, ,,( #&1'(
R"an, S(A( <#$$E=, Identif"ing conditional conser-atism, Curo#ean 3ccounting &eview+ Vol( '@,
,,( @''0@#@(
Schi,,er, /( <#$$@=, The introduction of International Accounting Standards in Euro,e.
im,lications for international con-ergence, Curo#ean 3ccounting &eview, '+<'=, ,,( '$'0#E(
S2erratt, J( <#$$@=, Does the >asu <?AE, '%%)= model reall" measure conser-atism in earningsU
>runel Uni-ersit" 0 Economics and 6inanceI Bhili,s !ollegeI /ingston Uni-ersit" 0 /ingston
>usiness School, Ba,er
Soderstrom, N(S( and /(?( Sun <#$$)=, I6RS Ado,tion and Accounting Vualit". A Re-ie4(
Curo#ean 3ccounting &eview
Tilli, S <#$$)=, Relia3ilit" of earnings figures and conser-atism in transitional economies,
Ja,,eenranta Uni-ersit" of Technolog", School of >usiness
Van Tendeloo en Vanstraelen <#$$@=, Earnings Management under Aerman AAAB -ersus I6RS,
Curo#ean 3ccounting &eview+ '+<'=, ,,( '@@0'*$
5atts, R(J(<#$$1=, !onser-atism in Accounting Bart I. E7,lanations and Im,lications,
3ccounting @oriHon, Vol( ') <Se,tem3er=, ,,( #$)&#'
5atts, R(J( <#$$1=, !onser-atism in Accounting Bart II. E-idence and Research O,,ortunities,
3ccounting @oriHon+ Vol( ') <Decem3er=, ,,( #*)01$'
@$
M"4ic2i, T( <#$$1=, The rise and fall of efficienc" in the common la4. A su,,l"0side anal"sis(
North;western Iaw &eview %)<+=. '@@'0'E1
@'
4))endi( 4; Summar# of !ain ,iterature
4ut"or/s0 Object of stud# Sam)le !et"od -esults
Ball, Kothari and
Robin (2000)
To examine the association between
country-level institutions and
conservative accounting practices
Accounting income, cash flow and
dividends over 1985-1995 from
lobal !antage "ndustrial#
$ommercial %"$& files
A model of incorporation of
economic income and
accounting income
Accounting income in common-law
countries is significant more timely
than in code-law countries, except
concerning 'apan
Ball, Robin and Wu
(2003)
To show that (ast Asian countries
financial reporting )uality is not
higher than under code law*
+,+- annual earnings
announcements during 198.-199-
in four Asian countries/ 0ong
1ong, 2alaysia, 3ingapore and
Thailand
A piecewise linear
regression of accounting
income on change in mar4et
value of e)uity concerning
each country or group of
countries
0igh-)uality standards do not guarantee
high-)uality financial reporting
Barth, Landman and
Lang (2007)
To examine whether the application
of "563 is associated with higher
accounting )uality*
189- firms from +1 countries in
pre "563 adoption and post "563
adoption periods*
7ooled regression, control
variables and matched
samples
5irms applying "563 generally have
less earnings management, more timely
loss recognition, and more value
relevance of accounting amounts than
firms applying non-83 domestic
standards*
Bartov, Goldberg
and Kim (2005)
To compare the value relevance of
earnings produced under three
accounting regimes %erman AA7,
8*3* AA7 and "A3&
.1- firms %91, firm-years&
5rom 1998-+999
The :asu %199,& measure !alue relevance of 8*3* AA7 based
earnings is higher than that of "A3
based earnings, which in turn is more
value relevant than earnings produced
under erman AA7*
Basu (!!7) To investigate systematic differences
between good and bad news periods
in the timeliness and persistence of
earnings*
1,*,99 firm years concerning
negative stoc4 returns, +5*5;1 firm
years concerning positive stoc4
returns from 19-;-1999
3toc4 returns to measure
news, the contemporaneous
sensitivity of earnings to
negative returns are
estimated through
regression
The coefficients of earnings response
are higher concerning positive earnings
changes than concerning negative
earnings changes* <egative earnings
changes are less persistent than positive
earnings changes*
@#
4ut"or/s0 Object of stud# Sam)le !et"od -esults
Bushman and
"iotros#i (200$)
To analy=e relations between 4ey
characteristics of country-level
institutions and the asymmetric
recognition of economic gains and
losses into earnings
$ountries with sufficient firm-
level accounting and returns data
on lobal !antage over the
period 199+>+991
8sing variations of the
models from :all 1othari
and 6obin %+999& and :all,
6obin and ?u %+99;&
The timeliness of accounting earnings
is higher in common law countries* The
incorporation of good news into
earnings is stronger in code law
countries* The asymmetric timeliness of
earnings %with respect to the
incorporation of bad news& is stronger
in common law countries
Gar%ia Lara and
&ora (2005)
To analy=e the existence of earnings
conservatism in financial statements
in 5rance, ermany and in the 81*
All observations available in the
@ata3tream ABiveC and A@eadC
files concerning the 81, 5rance
and ermany concerning the
period 1999>+991* 5inancial
firms and firms with accounting
periods of more than ;89 or less
than ;59 days are excluded*
The :asu %199,& measure
and the standard 'ones 2odel
%an accrual method to
measure differences in
earnings&
?hen corrected concerning
discretionary accruals, the differences
in earnings conservatism between the
81 %common-law& and 5rance and
ermany %code-law& become
significant*
de 'aan and
'inloo(en (2003)
To estimate the incremental
financing decision concerning the
@utch situation* Thereby
distinguishing internal finance and
three types of external finance/ ban4
borrowing, bond issues, and share
issues*
They sample contains 159 @utch
companies, the years 198.- 199,
A multinomial logit model,
which confirms several
predictions of both the static
trade-off theory and the
pec4ing order theory as to the
determinants of financing
choices* All possible ordered
profit models to determine
which financing hierarchy
fits the data best*
The results suggest that @utch firms
have a uni)ue most preferred financing
hierarchy/ %i& internal finance, %ii& ban4
loans, %iii& share issues, and %iv& bond
issues*
'ellman (2007 To investigate in which way the
conservatism principle is applied
under "563*
Three cases concerning loss carry
forwards, development costs and
construction contracts, related to
three different standards %"A3 1+,
"A3 ;8 and "A3 11, respectively&*
An analytical distinction is
made between consistent
conservatism %consistent
understatement of net assets&
and temporary conservatism
%changes in accounting
estimates that temporarily
understates net assets via the
creation of hidden reserves
which later may be reversed&*
The lower emphasis of consistent
conservatism under "563 will be
replaced by a greater emphasis on
temporary conservatism* "n addition,
The temporary application of the
conservatism principle in the company
capitali=ing development costs led to
counterintuitive effects on performance
measurement that had negative
implications concerning the control and
motivation of managers*
@1
4ut"or/s0 Object of stud# Sam)le !et"od -esults
'ollister, )hoa* and
+ull, (200-)
To investigates the international
variation of an important property of
accounting income/ its ability to
predict near-term cash flows
<ine industriali=ed countries with
well-developed accounting
systems, under which the
<etherlands concerning 199.-
+999
$omparison of a $ash 5low
7rediction 2odel
7erformance by $ountry and
the formula :all et al* %+999&
developed
Accounting accruals generated by
shorter hori=on, code-law regimes
provide more incremental explanatory
power concerning short-term predictions
than those of longer hori=on, common-
law countries
La "orta, Lo(e./de/
)ilanes, )%hlei*er,
0ishn, (2000)
To examine the rules covering
protection of corporate shareholders
and creditors, the origin of these
rules, and the )uality of their
enforcements
The sample covers .9 countries
from (urope, <orth and 3outh
America, Africa, Asia and
Australia*
A descriptive analysis of the
.9 countries*
%1& 5irst laws differ mar4edly around the
world, though in most places they tend to
give investors a limited bundle of rights*
%+& Baw enforcement differs around the
world* %;& $ountries develop substitute
mechanisms concerning poor investor
protection*
Leu., 1anda and
W,so%#i (2003)
To provide comparative evidence on
corporate earnings management
@ata are obtained from the
?orldscope @atabase, which
contains up to ten years of
historical financial data from
annual reports of publicly traded
companies of ;1 countries* :an4s
and financial institutions are
excluded from the empirical
analysis*
A descriptive analysis of the
;1 countries*
At a descriptive level, they find large
international differences across several
earnings management measures,
including loss avoidance and earnings
smoothing* Their evidence suggests that
firms in countries with developed e)uity
mar4ets, dispersed ownership structures,
strong investor rights, and legal
enforcement engage in less earnings
management*
Leu. and 0erre%%hia
(2000)
To examine the economic
conse)uences of introduction of
"563 in ermany*
3mall sample of erman firms
adopting "563 and 83 AA7 in
the transition period*
"ndirect measures as proxies
concerning cost of capitalD
bid-as4 spread, share
turnover, volatility
:ecause of transition to "563, bid-as4
spreads reduced and share turnover
increased* $oncerning volatility no
significant result are found*
"ae (2007) The examine the relation between
unexpected accruals and conditional
accounting conservatism
-;,9.1 firm-year observations
over the fiscal year from 1988-
+99;
The :asu %199,& measure to
estimate conservatism*
"n firms with higher leverage
conditionally more conservatism exists/
7rimarily through-unexpected accruals*
"o(e and Wal#er
(!!!)
To compare the accounting treatment
of extraordinary items in 83 and 81
accounting regimes
All @ecember fiscal year-end
non-financial firms listed in 83
and 81 from 19,--199-
(stimate slope coefficients
and conditional conservatism
depend on cost of e)uity*
The degree of conservatism displayed by
earnings before extraordinary items
under 83 AA7 was higher than under
81 AA7
4ut"or/s0 Object of stud# Sam)le !et"od -esults
Ro,%ho2dhur, and
Watts (200$)
To examine the relation between
asymmetric timeliness of earnings
.5,--. 5irm-year observations
from 19,+>1999 of income
$ompare :asu %199,&
regression coefficients across
The relation between asymmetric
timeliness of earnings and 2T: is
@+
and the mar4et-to-boo4 %2T:& ratio* before extraordinary items,
mar4et value of e)uity, boo4
values and fiscal-year e)uity
returns*
high 2T: and low 2T:
firms*
positive over long periods*
Ever short periods, its dependence on
beginning-of-period composition of
e)uity value is responsible concerning
its negative association with 2T:
R,an and 3aro2in
(2003)
$oncerning the declining
contemporaneous linear relation
between annual stoc4 returns and
accounting earnings investigating
two explanations* Time lags and
conservatism*
195,+-8 observations of annual
data %current net income and the
current and three lagged
6eturns& concerning all non-
financial firms from 19-->+999*
A regression analysis using
annual earnings as the
dependent variable*
Annual earnings have a wea4er
association with current price changes
and a stronger association with lagged
price changes over time* Annual
earnings reflect current positive price
changes less strongly and current
negative price changes more strongly
over time* Asymmetry with respect to
lagged price changes is increasingly
important over time
+endeloo and
0anstraelen (2005)
To investigate whether voluntary
adoption of "563 is associated with a
lower level of earnings management*
A sample of -;- firm year
observations* The firms used are
stoc4 listed companies from
ermany concerning 1991-+991
The 'ones 2odel was used
concerning estimating the
absolute discretionary
accruals the cross sectional*
A second method that used
the correlation between
accruals and operating cash
flows as a measurement of
earnings management*
Adopting "563 seems to increase the
magnitude of discretionary accruals*
They indicate that adopters of "563
cannot be associated with lower earnings
management
@@
4))endi( B; Sam)le of Com)anies 2nceasingl# =uoted from 2772>2778
AE# AM#
ABN A'() H)*+,-. NV ASM I-/0(-1/,)-1* NV
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A.012 (E3&F)(/,2) NV F4.() NV
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A2'* H)*+,-. NV 8)-,-5*,950 V):15 NV
C)(:)(1/0 E3:(022 NV 8)-,-5*,950 ;0221-0- NV
H1.0'0<0( NV N4/(0=) NV
H0,-050- NV O=0 NV
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R00+ E*20?,0( NV V0+,)( NV
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8)-,-5*,950 A>)*+ NV 8)-,-5*,950 ;0221-0- NV
8)-,-5*,950 DSM N4/(0=) NV
8)-,-5*,950 8PN NV O=0 NV
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R00+ E*20?,0( NV R1-+2/1+ H)*+,-. NV
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R)<1* D4/=> S>0** S4:0( D0 B)0(
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U-,*0?0( NV ;0(0*+>1?0 NV
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;)*/0(2 8*4A0( NV
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2""2 A56) N)70* NV 3"'23 "'"57"2%1 ("'372"%4 1 ("'372"%375
2""3 A56) N)70* NV 3"'6 "'"67%21 "'"12235 " "
2""4 A56) N)70* NV 31'3% "'"%"322 "'"254"2 " "
2""5 A56) N)70* NV 3'15 "'1"7"7457 "'2476" " "
2""6 A56) N)70* NV 46'21 "'1"26%1 "'1%"3321 " "
2""7 A56) N)70* NV 54'7 "'"322441" "'1%56741 " "
2""2 ASM I-/0(-1/,)-1* NV 11'75 ("'"2%"45% ("'4577"1 1 ("'4577"115
2""3 ASM I-/0(-1/,)-1* NV 16'25 ("'"5"21277 "'3%27%7 " "
2""4 ASM I-/0(-1/,)-1* NV 12'15 "'"2%23"% ("'2523"77 1 ("'2523"762
2""5 ASM I-/0(-1/,)-1* NV 14'1% ("'"6255144 "'167"7%2 " "
2""6 ASM I-/0(-1/,)-1* NV 15'% "'"45133 "'12634 " "
2""7 ASM I-/0(-1/,)-1* NV 16'75 "'"7"7133 "'"4%1%52 " "
2""2 A2'* H)*+,-. NV %'163 ("'"247"%% ("'52211 1 ("'522112%
2""3 A2'* H)*+,-. NV 16'1333 ("'"4544453 "'74%63 " "
2""4 A2'* H)*+,-. NV 12'12"5 "'"3416%46 ("'24%727% 1 ("'24%7277%7
2""5 A2'* H)*+,-. NV 17'3443 "'"54"34 "'43"%%% " "
2""6 A2'* H)*+,-. NV 1'3353 "'"%561%1 "'11472% " "
2""7 A2'* H)*+,-. NV 21'66 "'"77"6113 "'12"23" " "
2""2 C)(:)(1/0 E3:(022 NV 3'366 ("'32%1633 ("'6626" 1 ("'6626"1%
2""3 C)(:)(1/0 E3:(022 NV 6'53% ("'256733 "'661"527 " "
2""4 C)(:)(1/0 E3:(022 NV 6'766 "'"4631"54 "'"3473"6 " "
2""5 C)(:)(1/0 E3:(022 NV 12'43 "'""1477% "'%37126% " "
2""6 C)(:)(1/0 E3:(022 NV 11'26 "'"547"636 ("'"41271 1 ("'"4127112
2""7 C)(:)(1/0 E3:(022 NV 5'35 "'"35523% ("'524%66% 1 ("'524%667%5
2""2 CSM NV 1'"71% "'"17221 ("'1424%7 1 ("'1424%737
2""3 CSM NV 16'551% "'"%%5"764 ("'1321323 1 ("'13213225%
2""4 CSM NV 21'%7%2 "'"""2"42 "'321%"1 " "
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2""5 CSM NV 21'%32 "'"342%"7" "'""473 " "
2""6 CSM NV 27'%441 "'"66%625 "'2666"%1 " "
2""7 CSM NV 22'"5 "'"2446 ("'2"%""% 1 ("'2"%""762
2""2 F4.() NV 1"'7%25 "'"%3632735 ("'13121756 1 ("'13121756
2""3 F4.() NV 1"'2 "'"5136""7 ("'"54"22722 1 ("'"54"22722
2""4 F4.() NV 15'35 "'"%137254 "'5"4"161 " "
2""5 F4.() NV 27'13 "'"%371336 "'76742671 " "
2""6 F4.() NV 36'2 "'"755621"% "'334316255 " "
2""7 F4.() NV 52'% "'"%5116"2 "'45%563536 " "
2""2 H1.0'0<0( NV 5'"71% "'"23%"43 ("'67142%3 1 ("'67142%24
2""3 H1.0'0<0( NV 1'3157 ("'421737%4 ("'74"5%52 1 ("'74"5%517
2""4 H1.0'0<0( NV 1'7 ("'25%41757 "'22"%7 " "
2""5 H1.0'0<0( NV 2'74 ("'"647"5%% "'6117647 " "
2""6 H1.0'0<0( NV 3'%4 "'"%54"15 "'4"145 " "
2""7 H1.0'0<0( NV 4'6% "'"7"3125" "'21%75"" " "
2""2 H0,-050- NV 2'76 "'"4766377 ("'1265555 1 ("'12655552
2""3 H0,-050- NV 24'152 "'"54%3%71 ("'1%%44" 1 ("'1%%44"%6
2""4 H0,-050- NV 24'53 "'"45544%% "'"1565" " "
2""5 H0,-050- NV 26'7% "'"631%73 "'"17244 " "
2""6 H0,-050- NV 36'"3 "'"2233"1 "'3454"7" " "
2""7 H0,-050- NV 44'22 "'"457517 "'22731"6 " "
2""2 H4-/0( D)4.*12 NV 2%'55 "'1"1%1%" ("'"52434 1 ("'"524342
2""3 H4-/0( D)4.*12 NV 1"7 "'127%45%% "'2%24 " "
2""4 H4-/0( D)4.*12 NV 3'25 "'11"751%2 "'"576664 " "
2""5 H4-/0( D)4.*12 NV 45'% "'1"236 "'171465" " "
2""6 H4-/0( D)4.*12 NV 6"' "'134732 "'3244%% " "
2""7 H4-/0( D)4.*12 NV 5"'6% "'"%74%"6 ("'167%161 1 ("'167%16"2
2""2 8)-,-5*,950 A>)*+ NV 1"'2151 ("'"41""264 ("'62742% 1 ("'627427%
2""3 8)-,-5*,950 A>)*+ NV 6'"2%7 ("'""3"74 ("'4"%247 1 ("'4"%24671
2""4 8)-,-5*,950 A>)*+ NV 5'6%4 ("'"51322%4 ("'"562%"% 1 ("'"562%"7
2""5 8)-,-5*,950 A>)*+ NV 6'31%2 ("'""7"1656 "'11"5213 " "
@%
2""6 8)-,-5*,950 A>)*+ NV %'"45 "'"%3724%" "'2733"57 " "
2""7 8)-,-5*,950 A>)*+ NV '53 "'"6712244 "'1%45%67 " "
2""2 8)-,-5*,950 DSM 21'6 "'245623" "'"577"% " "
2""3 8)-,-5*,950 DSM 1'515 "'"2%5%46" ("'1""2766 1 ("'1""276625
2""4 8)-,-5*,950 DSM 23'%1 "'"643"51 "'22""%71 " "
2""5 8)-,-5*,950 DSM 34'5 "'11255775 "'44%71" " "
2""6 8)-,-5*,950 DSM 37'43 "'"%2"2% "'"%4275 " "
2""7 8)-,-5*,950 DSM 32'33 "'"627%3%6 ("'1362543 1 ("'136254341
2""2 8)-,-5*,950 8PN NV 6'2 ("'6""1751 "'"%5%144 " "
2""3 8)-,-5*,950 8PN NV 6'12 "'17"3226 ("'"12"32 1 ("'"12"3226
2""4 8)-,-5*,950 8PN NV 6' "'1"2411% "'142156 " "
2""5 8)-,-5*,950 8PN NV %'47 "'"442"6" "'211731" " "
2""6 8)-,-5*,950 8PN NV 1"'77 "'"327"37 "'2715466 " "
2""7 8)-,-5*,950 8PN NV 12'44 "'131%4773 "'155"6"4 " "
2""2
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E*0=/()-,=2 N1 16'7 ("'"751473 ("'47""4 1 ("'47""41
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E*0=/()-,=2 N1 26'25 "'1173757" "'345463 " "
2""6
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E*0=/()-,=2 N1 2%'57 "'"27142 "'"%%3%1" " "
2""7
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2""2 8)-,-5*,950 V):15 NV 6'165 "'14""7246 ("'"57626 1 ("'"5762625
2""3 8)-,-5*,950 V):15 NV 7'45 "'135442"1 "'2"%4347 " "
2""4 8)-,-5*,950 V):15 NV 7'%35 "'"14631 "'"51677 " "
2""5 8)-,-5*,950 V):15 NV 12'% "'"317167 "'63365" " "
2""6 8)-,-5*,950 V):15 NV 17'75 "'"%125""" "'3"2344 " "
2""7 8)-,-5*,950 V):15 NV 1'4 "'"%14%356 "'""13 " "
2""2 8)-,-5*,950 ;0221-0- NV 6'6 "'144""""" ("'34""""" 1 ("'34
2""3 8)-,-5*,950 ;0221-0- NV '3 ("'"7121212 "'4227273 " "
E$
2""4 8)-,-5*,950 ;0221-0- NV '45 "'""314% "'""63%% " "
2""5 8)-,-5*,950 ;0221-0- NV 12'%1 "'"4126%4 "'3555556 " "
2""6 8)-,-5*,950 ;0221-0- NV 1"'25 "'"2%%%36% ("'1%43 1 ("'1%43%72
2""7 8)-,-5*,950 ;0221-0- NV 1"'%% "'"55122" "'"614634 " "
2""2 N4/(0=) NV 16'1727 "'"5%5237 ("'5"44567 1 ("'5"445664
2""3 N4/(0=) NV 1'% ("'2627%%53 "'2242%54 " "
2""4 N4/(0=) NV 1%'3" "'1"757576 ("'"711667 1 ("'"71166667
2""5 N4/(0=) NV 33'1%2 "'2113"11 "'%44226 " "
2""6 N4/(0=) NV 44' "'"%2222 "'3237731 " "
2""7 N4/(0=) NV 3'56 "'"7216"36 ("'11%31" 1 ("'11%3"5%
2""2 O=0 NV 1"'5 "'11535"4 ("'"6%323" 1 ("'"6%322%1
2""3 O=0 NV 12'15 "'"657142 "'157142 " "
2""4 O=0 NV 11'26 "'"73251"3 ("'"73251" 1 ("'"73251"2
2""5 O=0 NV 12'1 "'"%17"515 "'"%2533 " "
2""6 O=0 NV 12'3 "'"516%171 "'"164"6 " "
2""7 O=0 NV 12'3% "'"71"25"2 ("'"""%"71 1 ("'"""%"71"3
2""2 O(+,-1 NV 5'64 "'"4736%42 ("'5"52632 1 ("'5"526315%
2""3 O(+,-1 NV '41 "'"546454 "'66%437 " "
2""4 O(+,-1 NV '23 "'"4357"67 ("'"112%6 1 ("'"112%5%7
2""5 O(+,-1 NV 14'4 "'"%45"7"4 "'56%%"% " "
2""6 O(+,-1 NV 16'76 "'"462%2 "'15665% " "
2""7 O(+,-1 NV 12'2 "'"44744" ("'272"764 1 ("'272"76372
2""2 R1-+2/1+ H)*+,-. NV %'55 "'"2%11245 ("'42771"% 1 ("'42771"%43
2""3 R1-+2/1+ H)*+,-. NV 1'23 "'"6""5%5 1'24122% " "
2""4 R1-+2/1+ H)*+,-. NV 2%'5 "'"%632345 "'5"546"2 " "
2""5 R1-+2/1+ H)*+,-. NV 36'6 "'"7253%%6 "'2673575 " "
2""6 R1-+2/1+ H)*+,-. NV 52'4 "'"%476424 "'42%1%21 " "
2""7 R1-+2/1+ H)*+,-. NV 27'"2 "'"631674 ("'4%43511 1 ("'4%4351145
2""2 R00+ E*20?,0( NV 11'6%31 "'"156124 ("'1227455 1 ("'1227454
2""3 R00+ E*20?,0( NV '%7% "'"3"65111 ("'1545"52 1 ("'1545"5225
2""4 R00+ E*20?,0( NV 1"'"5%5 "'"327444% "'"1%272 " "
E'
2""5 R00+ E*20?,0( NV 11'%336 "'"43%41" "'1764776 " "
2""6 R00+ E*20?,0( NV 12'567 "'"57544% "'"4"77 " "
2""7 R00+ E*20?,0( NV 13'6%%% "'"%"72"4 "'"565"36 " "
2""2 R)+1'=) E4():0 4"'25 "'"""1513 "'"14%764 " "
2""3 R)+1'=) E4():0 46'17 "'"%57142 "'147"%"7 " "
2""4 R)+1'=) E4():0 5%'4 "'1""4%16 "'264%"6 " "
2""5 R)+1'=) E4():0 7"'3 "'244%63"1 "'2"37671 " "
2""6 R)+1'=) E4():0 1""'% "'2421"526 "'433%54 " "
2""7 R)+1'=) E4():0 %5'2 "'165"737 ("'154761 1 ("'154761"5
2""2
R)<1* B)251*,2 ;02/',-2/0(
NV 6'4233 "'1"4%341 ("'35%"1 1 ("'35%"1%6
2""3
R)<1* B)251*,2 ;02/',-2/0(
NV 6'7 "'13%"364 "'"%5112" " "
2""4
R)<1* B)251*,2 ;02/',-2/0(
NV %'3 "'"521276 "'1"%17% " "
2""5
R)<1* B)251*,2 ;02/',-2/0(
NV 1%'75 "'"%%75542 1'25"361 " "
2""6
R)<1* B)251*,2 ;02/',-2/0(
NV 25 "'"7253333 "'3333333 " "
2""7
R)<1* B)251*,2 ;02/',-2/0(
NV 41'66 "'"52"""" "'6664""" " "
2""2 R)<1* D4/=> S>0** 2"'75 "'"5"4344 ("'2627417 1 ("'262741652
2""3 R)<1* D4/=> S>0** 2"' "'"762%124 ("'""35757 1 ("'""35756%5
2""4 R)<1* D4/=> S>0** 21'175 "'1"311""" "'"13157 " "
2""5 R)<1* D4/=> S>0** 25'7% "'144574%% "'2174734 " "
2""6 R)<1* D4/=> S>0** 26'72 "'121617%4 "'"364624 " "
2""7 R)<1* D4/=> S>0** 2%'75 "'13563623 "'"75731 " "
2""2 SBM O@@2>)(0 NV 12'22"% "'"43"472" ("'"41"41 1 ("'"41"415
2""3 SBM O@@2>)(0 NV 1"'4472 "'"2525146 ("'145126 1 ("'14512615
2""4 SBM O@@2>)(0 NV 11'355 "'"26431"1 "'"%6%"2 " "
2""5 SBM O@@2>)(0 NV 16'5%1 "'11475""4 "'46"2"13 " "
2""6 SBM O@@2>)(0 NV 25'3162 "'"717423% "'526737" " "
2""7 SBM O@@2>)(0 NV 2"'15 "'"514753 ("'17"%274 1 ("'17"%27375
2""2 S4:0( D0 B)0( 6'7"% ("'12233715 ("'7%13771 1 ("'7%1377"66
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2""3 S4:0( D0 B)0( '4446 "'"245161 "'3"734 " "
2""4 S4:0( D0 B)0( 4'"% ("'175761%1 ("'56%""71 1 ("'56%""7115
2""5 S4:0( D0 B)0( 2'%4 ("'137"5%% ("'3"3216 1 ("'3"32156
2""6 S4:0( D0 B)0( 2'%6 ("'1373234 "'""7"423 " "
2""7 S4:0( D0 B)0( 3'41 "'"3146%53 "'123"77 " "
2""2 TNT NV 15'"732 "'"51%516 ("'36415% 1 ("'36415%3%
2""3 TNT NV 1%'1171 "'"4"%4136 "'2"1412 " "
2""4 TNT NV 1'427 "'"75%7473 "'"752%3 " "
2""5 TNT NV 25'7561 "'"%4%34%4 "'32132"3 " "
2""6 TNT NV 31'7%53 "'"744674 "'234"%%2 " "
2""7 TNT NV 27'561 "'"624241 ("'132"11 1 ("'132"1"5%
2""2 U-,*0?0( NV 1'5166 "'"32475 ("'11"%61" 1 ("'11"%61"4%
2""3 U-,*0?0( NV 17'2%33 "'"4%16413 ("'11443"% 1 ("'11443"72
2""4 U-,*0?0( NV 16'4433 "'"37"27 ("'"4%6"1% 1 ("'"4%6"1%3
2""5 U-,*0?0( NV 1'2%33 "'"6%721"" "'1727147 " "
2""6 U-,*0?0( NV 2"'7 "'"6171143 "'"734677 " "
2""7 U-,*0?0( NV 25'15 "'"6376%12 "'21475% " "
2""2 U-,/ 4 NV 4'42 "'"3%3417 ("'5416% 1 ("'5416%12
2""3 U-,/ 4 NV %'77 "'1153%462 "'%4162 " "
2""4 U-,/ 4 NV 11'4 "'"4"3"7 "'2%%6" " "
2""5 U-,/ 4 NV 12'16 "'"6"52632 "'"666667 " "
2""6 U-,/ 4 NV 17'%5 "'"5%3%%16 "'467276 " "
2""7 U-,/ 4 NV 1'5 "'"442577" "'"2437" " "
2""2 V1- D0( M))*0- NV 2"'5 "'"446124 ("'3643411 1 ("'364341"%5
2""3 V1- D0( M))*0- NV 6'2 ("'"2"4%7%" ("'66243" 1 ("'66243"24
2""4 V1- D0( M))*0- NV 5'6% "'"524%55 ("'171"% 1 ("'171"751
2""5 V1- D0( M))*0- NV 6'"3 "'"51"5634 "'"61617 " "
2""6 V1- D0( M))*0- NV 4'45 ("'2%%55721 ("'262"232 1 ("'262"23217
2""7 V1- D0( M))*0- NV 2'% ("'44"4444 ("'35"561% 1 ("'35"5617%
2""2 V0+,)( NV 5'44 ("'"35412" ("'56136 1 ("'561356
2""3 V0+,)( NV 12'4 ("'22"5%%24 1'27411% " "
E1
2""4 V0+,)( NV 11' ("'"75%"645 ("'"33"645 1 ("'"33"64516
2""5 V0+,)( NV 12'52 "'"6%3"33 "'"442"35 " "
2""6 V0+,)( NV 15'71 "'"%7"6"7" "'254723 " "
2""7 V0+,)( NV 17'22 "'"%656"6 "'"61171 " "
2""2 ;0(0*+>1?0 NV 53'5 "'1124%%"% "'"2""11 " "
2""3 ;0(0*+>1?0 NV 5'35 "'11"4672 "'1"345% " "
2""4 ;0(0*+>1?0 NV %" "'14""16%5 "'34736" " "
2""5 ;0(0*+>1?0 NV 7'65 "'1155"""" ("'""4375" 1 ("'""4375
2""6 ;0(0*+>1?0 NV 1""' "'2"75326 "'266722 " "
2""7 ;0(0*+>1?0 NV 74'72 "'1"327"56 ("'25464% 1 ("'25464%17
2""2 ;)*/0(2 8*4A0( NV 16'6 "'"4421%% ("'3515625 1 ("'3515625
2""3 ;)*/0(2 8*4A0( NV 12'4 ("'"14457%3 ("'253"12" 1 ("'253"12"4%
2""4 ;)*/0(2 8*4A0( NV 14'77 "'"37"677 "'1112" " "
2""5 ;)*/0(2 8*4A0( NV 17'"% "'"5%22613 "'1563%1 " "
2""6 ;)*/0(2 8*4A0( NV 21'7 "'"6"%%3 "'2757611 " "
2""7 ;)*/0(2 8*4A0( NV 22'4% "'"5"4%1%7 "'"31665 " "
E+

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