Discretionary Revenue and Conditional Conservatism
Asian Tax Journal Vol. 22 No. 2 (2021), pp. 9-37
Abstract
This study investigate the link between discretionary revenues and conditional conservatism. discretionary revenue refers to revenue adjusted by management through intervention in financial reporting, which is a method of revenue recognised outside the normal scope. The preceding study reported that discretionary revenue have a positive relationship with the opacity of the revenue. In addition, although earnings management through revenue is the most frequently used by managers, there is very little research on them, which requires follow－up research. This study analyzed firms listed on the KOSPI and KOSDAQ markets from 2009 to 2017 in the belief that higher discretionary revenues will increase the timeliness of managers’ losses. To this end, discretionary returns were measured using Stubben (2010), Caylor (2010), and Chang et al. (2019), while conservatism was measured by the methods of Basu (1997), Ball and Shivakumar (2005), and Khan and Watts (2009). The analysis results are summarized as follows. First, discretionary revenues have been shown to have a positive association with conservatism even after controlling certain variables. Second, the measurement of discretionary revenue by the standard deviation of three years showed that the greater the variability in discretionary revenue the more relevant those are to conservatism. This study showed that discretionary revenue can be a significant factor as a variable affecting conservatism while presenting additional empirical evidence in the absence of research on discretionary revenue.
Keywords
- Discretionary Revenue
- Opacity of Revenue
- Conditional Conservatism
- Timeliness of Loss
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