Comment On 'On Estimating Conditional Conservatism' by Ball, Kothari, and Nikolaev
37 Pages Posted: 5 Sep 2011
Date Written: September 5, 2011
Ball, Kothari, and Nikolaev (2011) make two major claims in their recent working paper titled “On estimating conditional conservatism.” While they agree that the effect documented in Patatoukas and Thomas (2011) biases the conditional conservatism estimate proposed in Basu (1997), they claim that the source of bias is not scale effects but a non-linear relation between expected returns and expected earnings. Second, they propose revised measures of conditional conservatism, which they claim are unbiased. Our evidence contradicts both claims.
Keywords: Conservatism, Differential Timeliness, Earnings
JEL Classification: M40
Suggested Citation: Suggested Citation