The effect of conditional accounting conservatism on stock performance under a state of uncertainty: Evidence from Palestine during the outbreak of the COVID-19pandemic

Abstract

This research aims to identify the effect of conditional accounting conservatism on stock performance in light of uncertainty by studying the case of the COVID-19 pandemic in Palestine. Following the methodology ofCui et al. (2021), the researcher relied on a multiple regression model, where the stock’s performance was measured by the daily return of the stock during the COVID-19 pandemic in Palestine in the year 2020. As for the remaining variables, they were collected from the year preceding the pandemic (2019). Conditional accounting conservatism was measured using the Cscore measurement developed byKhan and Watts (2009). The results of the study showed that companies that practice conditional accounting conservatism achieve better performance in their stock returns compared to other less conservative companies, in light of the state of uncertainty during the COVID-19 pandemic in Palestine. Based on the results of the study, the researcher recommends that companies should adopt conditional accounting conservatism in light of uncertainty. Also, the researcher recommends that financial market regulators should oblige companies to adopt conditional accounting conservatism in light of uncertainty. As for stakeholders, including investors, creditors, and others, it is in their interest to deal with companies that adopt conditional accounting conservatism in light of uncertainty. This paper contributes to the accounting literature in that it is the first study applied exclusively in Palestine, which is considered a rare environment of financial markets that operate under a permanent state of uncertainty that is unparalleled in the world