Abstract

This paper adopts information neutrality perspective to examine the role of earnings conservatism to explore the effect of accounting conservatism on information asymmetry in Taiwan. Results reveal that when corporate earnings are increasingly conservative, information asymmetry is more severe generally. In addition, when earnings conservatism is excessive or insufficient, varying effects are produced between earnings conservatism levels and information asymmetry. Specifically, when corporate conservatism is insufficient, the relationship between earnings conservatism and information asymmetry is significantly negative. Conversely, when accounting earnings is much more conservative, the influence on information asymmetry is positive. The empirical results of this study support the current development of financial standards. The empirical results also show that when the corporation performance demonstrates good news or bad news separately, investors’ perception regarding the informativeness of accounting conservatism is different. Investors are more likely to identify with relevant results despite an overly conservative accounting recognition if the current period of a corporation provides good news.

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