Earnings Conservatism and Value Relevance Across the Business Cycle

18 Pages Posted: 11 Nov 2009

See all articles by David S. Jenkins

David S. Jenkins

University of Delaware - Accounting & MIS

Gregory D. Kane

University of Delaware - Accounting & MIS

Uma Velury

University of Delaware - Accounting & MIS

Date Written: 2009-06

Abstract

Prior research has demonstrated higher value relevance of current earnings during economic expansions relative to contractions. We largely attribute such a result to expected growth prospects being captured in the current earnings coefficient when a direct proxy for expected future earnings is omitted from the returns-earnings model. We demonstrate that the conservatism and value relevance of current earnings is actually higher during economic contractions when including a proxy for future earnings expectations. We further demonstrate that the value-relevance of expected future earnings is higher during expansions, when the association between historical accounting information and future growth opportunities likely weakens.

Suggested Citation

Jenkins, David S. and Kane, Gregory D. and Velury, Uma, Earnings Conservatism and Value Relevance Across the Business Cycle (2009-06). Journal of Business Finance & Accounting, Vol. 36, Issue 9-10, pp. 1041-1058, November/December 2009, Available at SSRN: https://ssrn.com/abstract=1503663 or http://dx.doi.org/10.1111/j.1468-5957.2009.02164.x

David S. Jenkins (Contact Author)

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Gregory D. Kane

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States
302-998-0221 (Phone)
302-831-6750 (Fax)

Uma Velury

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2
Abstract Views
1,293
PlumX Metrics