Earnings Restatements and Differential Timeliness of Accounting Conservatism
Journal of Accounting and Economics, Forthcoming
40 Pages Posted: 8 Jul 2009 Last revised: 12 Jul 2012
Date Written: January 10, 2012
We examine whether Basu’s (1997) differential timeliness metric and the related C-Score metric are effective in detecting predictable differences in conservatism surrounding corrections of overstated earnings. Cross-sectional and time-series analyses, employing 2,132 firms making restatements during 1999–2005, suggest Basu-based metrics capture variation in conservatism. Further, we find that increases in conservatism following restatements are contingent on improvements in corporate governance. Collectively, these results provide evidence of the usefulness of the Basu-based metrics in the restatement setting.
Keywords: Basu model, conservatism, differential timeliness, C-Score, restatements, governance
JEL Classification: M41, G34, M43
Suggested Citation: Suggested Citation