According to Watts (2003), besides the contracting reasons, accounting conservatism emerges because of the expected high litigation costs of overstatement, income tax motivation, and regulatory reasons. Accounting conservatism as an efficient contracting mechanism mitigates managers’ opportunistic behaviors. Specifically, conservatism limits managers’ ability and incentive to overstate earnings and net assets (Watts 2003). Also, accounting conservatism leads to the reduction of cost of debt and cost of equity (Ahmed et al., 2002; Watts, 2003; Francis et al., 2004).