Affiliation:
1. The University of Chicago
2. Massachusetts Institute of Technology
Abstract
ABSTRACT
The concept of conditional conservatism (asymmetric earnings timeliness) has provided new insight into financial reporting and stimulated considerable research since Basu (1997). Patatoukas and Thomas (2011) report bias in firm-level cross-sectional asymmetry estimates that they attribute to scale effects. We do not agree with their advice that researchers should avoid conditional conservatism estimates and inferences from research based on such estimates. Our theoretical and empirical analyses suggest the explanation is a correlated omitted variables problem that can be addressed in a straightforward fashion, including fixed-effects regression. Correlation between the expected components of earnings and returns biases estimates of how earnings incorporate the information contained in returns. Further, the correlation varies with returns, biasing asymmetric timeliness estimates. When firm-specific effects are taken into account, estimates do not exhibit the bias, are statistically and economically significant, are consistent with priors, and behave as a predictable function of book-to-market, size, and leverage.
Data Availability: Data are publicly available from sources identified in the article.
Publisher
American Accounting Association
Subject
Economics and Econometrics,Finance,Accounting
Reference39 articles.
1. Anomalies in relationships between securities' yields and yield-surrogates;Ball;Journal of Financial Economics,1978
2. Earnings quality in U.K. private firms: Comparative loss recognition timeliness;Ball;Journal of Accounting and Economics,2005
3. An empirical evaluation of accounting numbers;Ball;Journal of Accounting Research,1968
4. Ball, R.,
S. P. Kothari, and V. Nikolaev.
2011. Econometrics of the Basu Asymmetric Timeliness Coefficient and Accounting Conservatism. Working paper, The University of Chicago.
5. Detecting long-run abnormal returns: The empirical power and specification of test statistics;Barber;Journal of Financial Economics,1997
Cited by
197 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献
1. Does audit quality affect firm innovation?;Industrial Marketing Management;2024-02
2. CEO Political Contribution and Accounting Conservatism;Journal of Accounting, Auditing & Finance;2024-01-02
3. Labor skill and accounting conservatism;Journal of Accounting and Public Policy;2024-01
4. CEOs’ capital gains tax liabilities and accounting conservatism;Journal of Business Finance & Accounting;2023-12-11
5. Generalist CEOs and conditional accounting conservatism;Journal of Business Finance & Accounting;2023-10-22