News Dispersion, Asymmetric Verification and Conservatism

Posted: 5 Oct 2014

See all articles by Joseph Comprix

Joseph Comprix

Syracuse University

Huichi Huang

Oregon State University - College of Business

David Weinbaum

Syracuse University

Nir Yehuda

University of Delaware - Accounting & MIS

Date Written: October 3, 2014

Abstract

Asymmetric verification takes into account both the type of news (i.e., good versus bad news) and the level of uncertainty regarding that news. Good news should be more certain (i.e. more verifiable) before it is reflected in earnings than bad news. To test this principle, we use data from Thomson Reuters News Analytics to construct a measure of uncertainty based on news articles on public firms. These articles are measured at the firm level and are assigned positive, negative, and neutral scores that sum to a total of one. If the positive score is largest, then the article is coded as good news (bad news articles are coded similarly). We then create a dispersion measure for each article where higher numbers represent more polarized news. Overall, we find that good news is more highly associated with earnings when uncertainty is low consistent with asymmetric verification. In contrast, we find no such association between bad news and uncertainty (as we would expect).

Keywords: Conservatism, Bad News, Good News, Dispersion

JEL Classification: M41

Suggested Citation

Comprix, Joseph and Huang, Huichi and Weinbaum, David and Yehuda, Nir, News Dispersion, Asymmetric Verification and Conservatism (October 3, 2014). Available at SSRN: https://ssrn.com/abstract=2505222

Joseph Comprix

Syracuse University ( email )

Whitman School of Management
721 University Avenue
Syracuse, NY 13244-2450
United States
315-443-3674 (Phone)
315-442-1461 (Fax)

Huichi Huang

Oregon State University - College of Business ( email )

224D Bexell Hall
Corvallis, OR 97331
United States

David Weinbaum

Syracuse University ( email )

Syracuse, NY
United States

Nir Yehuda (Contact Author)

University of Delaware - Accounting & MIS ( email )

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

HOME PAGE: http://https://lerner.udel.edu/faculty-staff-directory/nir-yehuda/

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