Accounting Conservatism and the Temporal Trends in Current Earnings' Ability to Predict Future Cash Flows versus Future Earnings: Evidence on the Trade-off between Relevance and Reliability

• 成果类型: Article
• 署名作者: Bandyopadhyay, Sati P.; Chen, Changling; Huang, Alan G.; Jha, Ranjini
• 署名单位: University of Waterloo
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/j.1911-3846.2010.01013.x
• 发表日期: 2010
• 页码: 413-+
• 关键词: time-series properties; unconditional conservatism; stock returns; persistence; determinants; INFORMATION; valuation; accruals; QUALITY

摘要

This research reports that an increasing level of accounting conservatism over the 19732005 period is associated with: (1) an increase in the ability of current earnings to predict future cash flows and (2) a decrease in the ability of current earnings to predict future earnings. We also find that usefulness of earnings for explaining stock prices over book values is positively related to reliability but not to relevance. Our results hold for the constant and full samples in both in-sample and out-of-sample analyses and are robust to the use of alternative measures for relevance, reliability, earnings usefulness, and conservatism. Our findings about the relations among conservatism, relevance, reliability, and usefulness suggest a trade-off between relevance and reliability and seem to indicate that the adoption of an increasing number of conservative accounting standards has a possible adverse impact on earnings usefulness through a negative effect on reliability.