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Econometrics of the Basu Asymmetric Timeliness Coefficient and Accounting Conservatism

Ray Ball
University of Chicago

S.P. Kothari
Massachusetts Institute of Technology (MIT) - Sloan School of Management

Valeri Nikolaev
University of Chicago - Booth School of Business


April 25, 2009

Chicago Booth Research Paper No. 09-16

Abstract:     
Despite its popularity, the asymmetric timeliness coefficient has been challenged as a valid measure of conditional conservatism. We propose a model in which accounting income contemporaneously incorporates one component of price revision, incorporates another with a lag unless below a threshold (e.g., losses), invariably incorporates another with a lag, and adds uncorrelated “noise.” We demonstrate validity in this framework. We derive a negative relation between asymmetric timeliness coefficients and the proportion of price changes associated with growth option expectation revisions (proxied by market-to-book), due to lagged recognition. We conclude much criticism of the coefficient misconstrues research objectives.

Keywords: conditional conservatism, asymmetric timeliness, earnings

JEL Classifications: M40, M41, M44, G12, C20

Working Paper Series

Date posted: July 13, 2007 ; Last revised: May 15, 2009

Suggested Citation

Ball, Ray, Kothari, S.P. and Nikolaev , Valeri , Econometrics of the Basu Asymmetric Timeliness Coefficient and Accounting Conservatism (April 25, 2009). Chicago Booth Research Paper No. 09-16. Available at SSRN: http://ssrn.com/abstract=999710


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Contact Information

Ray Ball (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5941 (Phone)
773-702-0458 (Fax)
S.P. Kothari
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)
Valeri Nikolaev
University of Chicago - Booth School of Business ( email )
5807 South Woodlawn Avenue
Chicago, IL 60637
United States
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