Accounting Conservatism and Management Earnings Forecast

Posted: 6 Apr 2013 Last revised: 2 Aug 2019

See all articles by Bikki Jaggi

Bikki Jaggi

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Hua Christine Xin

University of South Alabama

Date Written: January 14, 2014

Abstract

It is argued in the literature that accounting conservatism may be used as a substitute for management earnings forecasts (MEFs) to reduce information asymmetry between investors and management (Hui et al., 2009). We document in this study that accounting conservatism serves as a substitute for informative MEFs and especially for pessimistic MEFs, but not for opportunistic and optimistic forecasts. Accounting conservatism may, however, be used as supplementary to optimistic MEFs. Additionally, we find that accounting conservatism is especially used by the firms that have strong corporate governance, suggesting that strong corporate governance encourages the use of accounting conservatism rather than issuance of MEFs to reduce information asymmetry and to minimize potential legal suits for the firm.

Keywords: Accounting Conservatism, Informative/Non-Informative Management Earnings Forecast, Pessimistic/Optimistic MEF

Suggested Citation

Jaggi, Bikki and Xin, Hua Christine, Accounting Conservatism and Management Earnings Forecast (January 14, 2014). Available at SSRN: https://ssrn.com/abstract=2246168 or http://dx.doi.org/10.2139/ssrn.2246168

Bikki Jaggi

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

100B Rockafeller Road
Piscataway, NJ 08854
United States

Hua Christine Xin (Contact Author)

University of South Alabama ( email )

Department of Accounting
Mitchell Learning Resource Center, Room 250
Mobile, AL Alabama 36688
United States
(251)460-6144 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
9,560
PlumX Metrics