International Differences in the Timeliness, Conservatism and Classification of Earnings

56 Pages Posted: 8 Nov 1999

See all articles by Peter F. Pope

Peter F. Pope

Bocconi University; London School of Economics

Martin Walker

University of Manchester - Manchester Business School

Multiple version iconThere are 2 versions of this paper

Date Written: August 1999

Abstract

In this study we compare the timeliness and conservatism of reported earnings across the U.S. and U.K. GAAP regimes. We present a theoretical model of the differential speeds of recognition of good news and bad news. This suggests informative and relatively robust ways of measuring dimensions of conservatism in income recognition. The analysis shows the importance of distinguishing between delays in reporting good news and early recognition of bad news, when comparing conservatism across GAAP regimes. Empirical results suggest that the treatment of extraordinary items is important in assessing relative conservatism. The degree of conservatism of the U.S. GAAP regime appears significantly greater than for the U.K. GAAP regime, when estimated using ordinary earnings. However, when conservatism is estimated using earnings after extraordinary items we find that the gap is far less pronounced, and may even disappear. Our results further indicate that the main feature distinguishing the timeliness of earnings between the U.S. and U.K. is not the relative speed of recognition of bad news, but the much slower recognition of good news under U.S. GAAP.

JEL Classification: M41, M44, M47, M49, G15, N20

Suggested Citation

Pope, Peter F. and Walker, Martin, International Differences in the Timeliness, Conservatism and Classification of Earnings (August 1999). Available at SSRN: https://ssrn.com/abstract=185308 or http://dx.doi.org/10.2139/ssrn.185308

Peter F. Pope (Contact Author)

Bocconi University ( email )

Milan
Italy

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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