Reporting incentives for accounting conservatism, evidence from asset and equity tunnelling

Yuying Xie (Accounting Department, Hong Kong Shue Yan University, Hong Kong)
Liu Zheng (Accounting Department, City University of Hong Kong, Hong Kong)
H.L. Amy Lau (School of Business, The University of Hong Kong, Hong Kong)

Pacific Accounting Review

ISSN: 0114-0582

Publication date: 7 September 2012



The purpose of this study is to investigate reporting incentives for accounting conservatism in the context of asset and equity tunnelling and to provide empirical evidence that accounting conservatism can be reported for opportunistic reasons rather than efficiency reasons.


A cross‐sectional analysis of data from the period 2002 to 2004 is conducted.


This study provides empirical evidence that firms undertaking asset or equity tunnelling transactions report higher conservatism than firms undertaking other kinds of connected transactions. Further tests document a positive association between accounting conservatism and the private benefits gained by controlling shareholders from asset and equity tunnelling.


Contrary to the prevalent view that accounting conservatism signifies better quality accounting and benefits financial statement users, this study shows that accounting conservatism is influenced by institutional factors and the incentives of financial statement preparers. Researchers should exercise caution in interpreting higher accounting conservatism as an indication of better accounting information quality, especially in cross‐country research involving different institutions.



Xie, Y., Zheng, L. and Amy Lau, H. (2012), "Reporting incentives for accounting conservatism, evidence from asset and equity tunnelling", Pacific Accounting Review, Vol. 24 No. 2, pp. 138-160.

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Copyright © 2012, Emerald Group Publishing Limited

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