Developing Basu Model to Measure Earnings Conservatism In Jordanian Commercial Banks

Laith Akram AL-Qudah, Abdulsattar A Alkubaisi

Abstract


The study aims to developing the (Basu) model to measure accounting conservatism of earnings in Jordanian commercial banks. To achieve this objective, we focus on factors affecting the conservative earnings (market returns in the case of bad news compared to the impact of market returns in the case of good news, the ratio of market value to book value per share, international financial reporting standards, and corporate governance).This study has 104 observations; based on the published financial statements of (13) Jordanian Commercial Banks as listed on the Amman Stock Exchange from 2005 to 2012.
The study used the covenant statistical methods and the Minitab statistical program, built on Cross-sectional and time series analysis, to compile, analyze, and to test the validity of the hypotheses.
The findings can be summarized as follows: there is a statistical significant positive impact of market returns in the case of bad news compared to the impact of market returns in the case of good news, There is a significant statistical impact of market returns when the ratio of market-value to book-value is higher in the beginning period, and there are no statistical significant differences in the level of earnings conservatism in all Jordanian commercial banks after applying and international financial reporting standards. Also, there are no statistical significant differences in the level of conservative earnings in Jordanian commercial banks after applying the corporate governance rules, the study shows the lack of the statistical significant differences when all mentioned factors combined to earnings conservatism in all Jordanian commercial banks.
Based on that findings, further studies are needed to measure the levels of earnings conservatism in the Jordanian environment, and the need to introduce new variables that can have an impact on the earnings conservatism, such as (legal accountability, the application of fair value, and the lawsuits), In addition, the concerned authorities are invited to use the modified Basu model, to facilitate a comparison of the information and media content for financial statements of companies and banks, to add new dimension of measurement and analysis of the financial performance of those institutions.

Keywords


Accounting conservatism, Basu model, Jordanian commercial banks, International Financial Reporting Standard, Corporate governance

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