Big 4 conservatism around the world

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Book chapter

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Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics & Governance

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Springer Berlin Heidelberg


Conservatism is a long-established underlying principle of accounting but its implementation has come under the spotlight in recent years following the spate of well-publicized corporate collapses in the U.S. and elsewhere. Previous studies have shown that the Big 4 audit firms are more conservative than the non-Big 4 in the U.S. The current study examines whether the U.S. findings extend to other countries. In doing so, we make use of a relatively new measure of conservatism, namely, the C-score developed by Khan and Watts. We find that the conclusion drawn from U.S. studies, namely that the Big 4 are more conservative, extends to the international setting but only under certain conditions. Specifically, the Big 4 are more conservative in those countries where litigation and reputation risks, broadly defined, are high. This increase in conservatism represents a rational response by the Big 4 auditors to their greater exposure, vis-a-vis the non-Big 4 auditors, to litigation and reputation loss in those countries.



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© Springer-Verlag Berlin Heidelberg 2014

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ISBN of the source publication: 9783642449543

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Recommended Citation

Boubaker, S. and Nguyen, D.K. (eds.)(2014), Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics & Governance, pp. 197-238. Springer Berlin Heidelberg. DOI 10.1007/978-3-642-44955-0_8.

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