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Conditional Accounting Conservatism Lessens the Cost of Capital: Evidence from Non-Financial Sector of Pakistan

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  • Naveed Razzaq

    (Xinyu University, China.)

Abstract

The intention of this research article is to explore the accounting conservatism association with the cost of capital in Pakistani firms. For this examination, data collected from annual reports of 142 firms registered in Pakistan Stock Exchanges (PSX) for the period 2006 to 2011. This paper calculates the cost of capital by employing OJ-Model (2005) and accounting conservatism by using renowned Basu (1997) model. Current paper found a significant negative association of irregular measurement of earnings (bad news or c-score) and the cost of capital, which infers that conservative reporting in Pakistani firms reduces the cost of capital. Furthermore, this study also concludes by finding significant results that risk premium and return on assets have directly proportion relationship with the cost of capital. In extent, present study increases the literature in same vein of study and interest of accounting conservatism in financial reporting and academic research in Pakistan.

Suggested Citation

  • Naveed Razzaq, 2019. "Conditional Accounting Conservatism Lessens the Cost of Capital: Evidence from Non-Financial Sector of Pakistan," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(2), pages 42-49, October.
    • Handle: RePEc:gei:jnlfer:v:4:y:2019:i:2:p:42-49
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    References listed on IDEAS

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    1. Francis, Jere R. & Martin, Xiumin, 2010. "Acquisition profitability and timely loss recognition," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 161-178, February.
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    5. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    6. Givoly, Dan & Hayn, Carla, 2000. "The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 287-320, June.
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    Cited by:

    1. Ratna Puji Astuti KRISMIAJI, 2021. "Accounting Conservatism and Cost of Equity Capital – Evidence from Indonesia," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 2(2), pages 64-72, February.

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