Conservatism in Accounting: A Life Cycle Perspective

This article examines whether the stage of a company's life cycle has an effect on the conservatism of its reporting in a cross-section or not. Two conservatism scales are used in Giuli and Hein (2000) report: the level of non-operating accruals and the market-to-book ratio (unconditional conservatism) and Basu's (1997) conservatism scale (conditional conservatism). Annually, companies are divided into life cycle stages using the procedure proposed by Dickinson (2011). It was found that unconditional conservatism reduces the reporting of life cycle stages, but the evidence did not show that conditional conservatism is related to life cycle stages. Our finding is complementary to that of Givoly and Hayn (2000) and has implications for financial statement analysis and future research on conservatism in accounting.