Firm Type and Unconditional Conservatism: The Indian Experience with IFRS Convergence

Abstract

This paper investigates how private and public firms vary with respect to unconditional conservatism in financial reporting in the pre and post IFRS worlds. I consider unconditional conservatism (UC) which pre-empts the more commonly studied conditional conservatism, private firms that are differently regulated, IFRS convergence instead of the more uniform IFRS adoption and an emerging market. Using a large Indian sample of 63,000 observations across more than 15,500 firms (~41% are private) over 10 years (2011-2020), I show that private firms are less unconditionally conservative than public firms. Also, contrary to literature, IFRS convergence increases conservatism in India and reduces the conservatism gap between private and public firms. These results hold even after controlling for monitoring, governance, and group-affiliation. This adds significantly to our understanding of how the effect of uniform accounting standards on reporting choices of different firm types varies significantly by and within a context and region.