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Income Conservatism in the U.S. Technology Sector


Uday Chandra


SUNY University at Albany

Charles E. Wasley


University of Rochester - Simon Business School

Gregory B. Waymire


Emory University - Department of Accounting

January 5, 2004

Simon School Working Paper No. FR 04-01

Abstract:     
We investigate the extent and nature of income conservatism as reflected in the financial statement numbers of firms in the U.S. technology sector. Technology firms are predicted to have greater income conservatism than other U.S. firms because they are subject to both higher shareholder litigation risk and conservative accounting standards such as SFAS 2. In the absence of a generally accepted measure of conservatism, we examine several proxies including loss incidence and accounting rates of return, operating cash flow and non-operating accrual levels, and regression coefficients from the income timeliness models in Basu (1997). Relative to other companies, technology firms are characterized by higher (and intertemporally increasing) levels of income conservatism. These differences are both statistically and economically significant. Further analysis suggests that technology firms' higher conservatism results primarily from conservative accounting rules for R&D expensing rather than shareholder litigation risk.

Number of Pages in PDF File: 62

JEL Classification: M41, M44, K22

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Date posted: February 10, 2004  

Suggested Citation

Chandra, Uday and Wasley, Charles E. and Waymire, Gregory B., Income Conservatism in the U.S. Technology Sector (January 5, 2004). Simon School Working Paper No. FR 04-01. Available at SSRN: http://ssrn.com/abstract=485064 or http://dx.doi.org/10.2139/ssrn.485064

Contact Information

Uday Chandra
SUNY University at Albany ( email )
1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States
518-442-9092 (Phone)
Charles E. Wasley (Contact Author)
University of Rochester - Simon Business School ( email )
Rochester, NY 14627
United States
585-275-3362 (Phone)
585-442-6323 (Fax)
Gregory B. Waymire
Emory University - Department of Accounting ( email )
Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-6589 (Phone)
404-727-6313 (Fax)
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