Big 4 Conservatism Around the World

Richard Chung*, Michael Firth, Jeong Bon Kim, Lei Pang

*Corresponding author for this work

    Research output: Chapter in book/report/conference proceedingChapterpeer-review

    3 Citations (Scopus)

    Abstract

    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.

    Original languageEnglish
    Title of host publicationCSR, Sustainability, Ethics and Governance
    Subtitle of host publicationTheories, Practices and Cases
    EditorsSabri Boubaker, Duc Khuong Nguyen
    Place of PublicationBerlin
    PublisherSpringer Nature
    Pages197-238
    Number of pages42
    ISBN (Electronic)9783642449550
    ISBN (Print)9783642449543
    DOIs
    Publication statusPublished - 10 Feb 2014

    Publication series

    NameCSR, Sustainability, Ethics and Governance
    PublisherSpringer
    ISSN (Print)2196-7075
    ISSN (Electronic)2196-7083

    Scopus Subject Areas

    • Business and International Management
    • Organizational Behavior and Human Resource Management
    • Strategy and Management
    • Development
    • Social Sciences (miscellaneous)
    • Management, Monitoring, Policy and Law

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