Conditional Conservatism and its Effect on Earnings Quality and Stock Prices in Indian Capital Market

Abstract

This study examines conditional conservatism in Indian capital markets and extent to which conditional conservatism affect earnings quality and stock prices. Conservatism principle has been traditionally used in financial reporting for long time it has been dominant accounting principles (Watts 2003). In recent years, the focus of standard setters such is IASB have been less conservative accounting standard. We used secondary data for companies listed in Bombay stock exchange from 2006 to 2012. We employed pooled panel data regression with standard error robust. We find enough evidence to support presence of conditional conservatism during 2006 to 2012 in Indian capital market. We also find that conservatism do not affect the quality of reported earnings, however it influence stock prices.

Keywords: Conservatism, earnings quality, returns.