The Impact of Accounting Conservatism on Information Asymmetry:Evidence from Egypt

The purpose of the current study is to investigate the impact of accounting conservatism on information asymmetry amongst non-financial companies listed on the Egyptian Exchange throughout the period 2007-2014. More specifically, the study investigates whether or not accounting conservatism assists in alleviating the information asymmetry problem between insiders and outsiders. The study employed one of the most commonly used measures of accounting conservatism, Market-to-Book (MTB) ratio, while information asymmetry was measured using the Bid-Ask spread. In addition, the study takes into account a number of control variables. The study utilised both the univariate and multivariate analysis to provide robust evidence. The results of both the mivariate and multivariate analyses reported a negative impact of accounting conservatism on the information asymmetry, but no statistical significance was resulted. With respect to control variables, the results reveal a statistically significant relationship between information asymmetry and trading volume. In addition, the study reveals negative associations with respect to size, leverage and auditor type, while positive relationships were reported regarding profitability, liquidity and listing status, however, no statistical significance resulted. To the best of the researcher's knowledge, this is the first study to examine the association between accounting conservatism and information asymmetry in a developing country like Egypt. The results reported here should provide references for companies when preparing their financial statements in the future.