How Does Inflation Reshape Accounting Conservatism Practices?

Abstract

The aim of this study is to analyze the impact of inflation rates on the level of accounting conservatism in non financial Algerian companies, and to highlight how these companies respond to economic pressures in an environment characterized by volatility and uncertainty, through testing the hypothesis of a positive and statistically significant effect of inflation on accounting conservatism. The study relied on a sample of 120 Algerian non financial companies over the period 2012–2023, resulting in unbalanced panel data with a total of 1,412 observations. Pooled regression was used to examine the effect of company specific characteristics, while the fixed effects model was employed to introduce inflation as a moderating variable. The results indicate a positive effect of inflation that reshapes accounting conservatism practices, showing that companies do not apply conservatism as a static policy, but rather as a dynamic behavior for managing systemic risks. Highly leveraged companies or those facing bankruptcy risk tend to adopt higher levels of conservatism during inflationary periods to mitigate uncertainty and enhance financial credibility.