Is Egyptian corporate financial reporting becoming more conservative?

PurposeThe study aims to compare the level of accounting conservatism amongst the sample companies prior to the 2011 uprising and after that uprising. The study proceeds further to examine the association between accounting conservatism and the level of leverage and profitability of the sample companies covering the same period.Design/methodology/approachFirst, a review of the extant literature on accounting conservatism is undertaken. Second, the sample comprises all the non-financial companies listed on the Egyptian Exchange. Accounting conservatism is measured using the market-to-book (MTB) ratio, which is one of the most widely used proxies for determining the extent of accounting conservatism in prior literature. The two-sample t-test has been used to compare the level of accounting conservatism six years prior to the 2011 uprising and four years following that uprising. Univariate and multivariate analyses have been used to examine the association between some firm characteristics and the level of accounting conservatism amongst the sample companies at the two investigated periods.FindingsThe evidence implies that the sample companies are actually engaging in less-conservative accounting policies following the uprising. The results also reveal that data for the first period seems to have greater variations in the first period than in the second period, as can be seen from the values of the standard deviation. The multivariate analysis reported a significant positive relationship between only size and the level of accounting conservatism at both periods.Research limitations/implicationsThis study adds Egyptian evidence with respect to the directions of accounting conservatism throughout crisis periods, as the majority of prior studies focus on countries with developed capital markets. In addition, the absence of any specific evidence concerning the direction of accounting conservatism during crisis periods will lead to naïve investors misinterpreting earnings figures and not realising the actual value of their shares.Practical implicationsThe results reported in this study may encourage those investors to seek out extensive, widely-sourced information regarding investee firms before deciding whether to hold or sell their holdings. Furthermore, the results presented in this paper should therefore be of interest to regulators and standard-setters charged with developing accounting standards to improve the quality of accounting information.Originality/valueTo the best of authors’ knowledge, this is the first and most recent study that examines the level of accounting conservatism amongst non-financial companies in a developing country like Egypt