Abstract

http://ssrn.com/abstract=2283689
 


 



Revisiting Asymmetric Timeliness Estimates of Conditional Conservatism


Panos N. Patatoukas


University of California, Berkeley - Haas School of Business

Jacob K. Thomas


Yale School of Management

December 2, 2014


Abstract:     
Basu (1997) proposes a measure of financial reporting conservatism based on asymmetry in the conditional earnings/returns relation. Patatoukas and Thomas (2011) show bias in this measure, because lagged earnings also exhibits similar asymmetry. Ball, Kothari, and Nikolaev (2013b), suggest that this bias is due to asymmetry between the expected components of earnings and returns, and propose a revised measure based on the unexpected components. Collins, Hribar, and Tian (2014) suggest that the bias arises because of asymmetry in the cash flow component of earnings, and propose a revised measure based on the accrual component. Not only does our evidence contradict these explanations for lagged earnings asymmetry, it suggests substantial bias in both revised measures, resulting in unreliable inferences about aggregate levels of, as well as time-series and cross-sectional variation in, conditional conservatism. More generally, our findings suggest that the asymmetric timeliness specification be used with caution.

Number of Pages in PDF File: 50

Keywords: Conditional conservatism; asymmetric timeliness; placebo tests; sample truncation bias

JEL Classification: M41

working papers series





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Date posted: June 23, 2013 ; Last revised: December 3, 2014

Suggested Citation

Patatoukas, Panos N. and Thomas, Jacob K., Revisiting Asymmetric Timeliness Estimates of Conditional Conservatism (December 2, 2014). Available at SSRN: http://ssrn.com/abstract=2283689 or http://dx.doi.org/10.2139/ssrn.2283689

Contact Information

Panos N. Patatoukas (Contact Author)
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
HOME PAGE: http://sites.google.com/site/panossom/
Jacob Kandathil Thomas
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
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