Political Restrictions on Investments in China and Asymmetric Timeliness of Earnings
Other Title
大陸投資限制與盈餘認列即時性之不對稱
Journal
會計評論
Journal Issue
55
Pages
1-36
Date Issued
2012
Author(s)
Abstract
The study investigates whether asymmetric timeliness of earnings will increase with the amount of investments in China. The government in Taiwan has attempted to brake the rapid expansion of commercial ties by placing some restrictions on investments in China. The government restricts cumulative investments in China to 20-40% of a firm's shareholder equity, depending on the firm's size. Following Basu (1997), accounting conservatism would impose stronger verification requirements for the recognition of economic gains than for the recognition of economic losses, leading to accounting earnings that reflect bad news more quickly than good news. Watts (2003) argues that conservatism can reduce the political costs imposed on standard setters and regulators. The results show that asymmetric timeliness increases as the investments in China increase, supporting Watts (2003).
Type
journal article