The Conservatism Principle and the Asymmetric Timeliness of Earnings: An Event-Based Approach

• 成果类型: Article
• 署名作者: Shroff, Pervin K.; Venkataraman, Ramgopal; Zhang, Suning
• 署名单位: University of Minnesota System; University of Minnesota Twin Cities; Southern Methodist University; George Mason University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/j.1911-3846.2011.01151.x
• 发表日期: 2013
• 页码: 215-241
• 关键词: international differences; distributional properties; ACCOUNTING EARNINGS; Cash flows; CLASSIFICATION; RECOGNITION; INFORMATION; incentives; relevance; accruals

摘要

We test the asymmetric timeliness hypothesis by using information in extreme events as a measure of good/bad news. Our focus on extreme events is motivated by two arguments. First, the accounting concept of materiality in conjunction with litigation risk influences managers and auditors to make more conservative choices with respect to material events. Second, focusing on extreme shocks minimizes the probability that accounting slack may obscure the effect of asymmetric timeliness (Beaver and Ryan 2005). We identify individual events using short-window extreme returns, since long-window returns would aggregate the effect of multiple events and thus limit our ability to detect the asymmetry. Taken together, these features of our research design provide a more powerful test of asymmetric timeliness. Consistent with prior studies, we document that the correlation between bad news and concurrent earnings is significantly higher than that between good news and concurrent earnings. Our analysis of extreme events also enables us to document higher correlation of good news with earnings two or more quarters ahead. This is in contrast to prior studies that were unable to document asymmetry in the relation between returns and subsequent earnings in the opposite direction to that between returns and concurrent earnings. Our paper contributes to the growing literature on conservatism by modifying the Basu methodology to enhance the power of the test of asymmetric timeliness.