Wei Ting, Mei-Chu Huang
This paper examines the role of economic conditions (economic gains and losses)
within the Taiwan stock market, with the results of the accruals models indicating that
firms in Taiwan demonstrate more timely recognition of losses than gains. This result
is similar to the findings of Ball and Shivakumar (2006) who similarly examined the
U.S. firms. We also separate the sample into two groups (better or worse debt contract
conditions) to determine whether this asymmetric recognition of accruals by firms is
affected by their debt contract condition. The results reveal that firms in Taiwan with
a worse debt contract condition have much less incentives to use accruals to hide their
economic losses than firms with a better debt contract condition; that is, firms with a
worse debt contract condition have greater incentives to conservatism recognize
accruals.
Keywords: Accruals models, Asymmetrically recognized accruals, Debt contract
condition.
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