Comment On 'On Estimating Conditional Conservatism' by Ball, Kothari, and Nikolaev
Panos N. Patatoukas
University of California, Berkeley - Haas School of Business
Jacob K. Thomas
Yale School of Management
September 5, 2011
Ball, Kothari, and Nikolaev (2011) make two major claims in their recent working paper titled “On estimating conditional conservatism.” While they agree that the effect documented in Patatoukas and Thomas (2011) biases the conditional conservatism estimate proposed in Basu (1997), they claim that the source of bias is not scale effects but a non-linear relation between expected returns and expected earnings. Second, they propose revised measures of conditional conservatism, which they claim are unbiased. Our evidence contradicts both claims.
Number of Pages in PDF File: 37
Keywords: Conservatism, Differential Timeliness, Earnings
JEL Classification: M40working papers series
Date posted: September 5, 2011
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