Investment, IFRS adoption and conditional accounting conservatism in South Asia / Isuru Nadeesha Manawadu

Isuru Nadeesha , Manawadu (2019) Investment, IFRS adoption and conditional accounting conservatism in South Asia / Isuru Nadeesha Manawadu. PhD thesis, Universiti Malaya.

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Abstract

The purpose of this study is to examine the relationship between types of investment (foreign direct investment, foreign portfolio investment and domestic investment) and conditional accounting conservatism in South Asia. This study uses the model developed by Basu (1997), Ball and Shivakumar (2005) and Hämäläinen and Martikainen (2015) to measure conditional accounting conservatism. The sample consists of listed companies in India, Pakistan, Bangladesh and Sri Lanka during the period of 2006 to 2015. The research hypotheses of the study were tested on a panel Generalized Method of Moments (GMM) estimator. This study found that there is a high incremental conditional accounting conservatism for foreign direct investment in emerging economies, in particular South Asia. Moreover, it was found that South Asian firms are less likely to recognize economic losses for foreign portfolio investment and domestic investment unlike foreign direct investment. In addition, the result ensures that conditional accounting conservatism affects positively on each type of investment in South Asia. In addition, it was found that there is a moderating effect of International Financial Reporting Standards (IFRS) adoption on the relationship between each type of investment and conditional accounting conservatism in South Asia. In a theoretical perspective, this study makes several contributions. Firstly, it contributes to conditional accounting conservatism and foreign direct investment research by adding new evidence that there is a high incremental conditional accounting conservatism for foreign direct investment in emerging economies. Secondly, it contributes to conditional accounting conservatism research, by providing the new insight that firms in South Asia are less likely to recognize economic losses for foreign portfolio investment and domestic investment. In addition, this study contributes new evidence that conditional accounting conservatism is also a significant determinant for each type of investment in South Asia. Thirdly, the study contributes to the IFRS research by providing new evidence that IFRS adoption moderates the relationship between each type of investment and conditional accounting conservatism in South Asia. From a policy perspective, economic decision makers such as central banks and relevant ministries will benefit from this result by attracting investment to enhance economic development. The study is crucial for the authoritative decision makers in the field of accounting, such as professional accounting bodies in South Asia to make policy decisions to improve accounting quality. In addition, the study has a methodological implication that a dummy variable for foreign direct investment shows lower incremental conditional accounting conservatism, while real data for foreign direct investment shows higher incremental conditional accounting conservatism.

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