Asymmetry in Earnings Timeliness and Persistence: A Simultaneous Equations Approach
41 Pages Posted: 2 Apr 2008 Last revised: 19 Sep 2012
Date Written: December 20, 2010
Abstract
This study addresses simultaneity bias in piecewise linear forms of the earnings-return relation. We specify an overidentified system of simultaneous equations that incorporates both asymmetric earnings timeliness and asymmetric earnings persistence specifications, and implement two-stage least squares for this piecewise linear system. Estimation of such a system that is piecewise linear in endogenous variables presents several distinctive issues for which there exists no precedent in the accounting literature. Findings provide evidence that the asymmetric timeliness specification is particularly affected by simultaneity, and that failing to correct for simultaneity results in coefficient estimates that understate the degree of asymmetric earnings timeliness. Moreover, our findings suggest that asymmetric earnings timeliness has dissipated, not increased, over time when simultaneity is taken into account.
Keywords: Conservatism, Earnings Persistence, Returns-Earnings Relation
JEL Classification: M41, M44, C33
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Effect of International Institutional Factors on Properties of Accounting Earnings
By Ray Ball, S.p. Kothari, ...
-
The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting
-
Conservatism in Accounting - Part I: Explanations and Implications
-
International Differences in the Timeliness, Conservatism and Classification of Earnings
By Peter F. Pope and Martin Walker
-
By Ray Ball, Ashok Robin, ...
-
Corporate Financial Statements, a Product of the Market and Political Processes
-
Conservatism in Accounting - Part Ii: Evidence and Research Opportunities
-
Earnings Quality in U.K. Private Firms
By Ray Ball and Lakshmanan Shivakumar