Income Conservatism in the U.S. Technology Sector

62 Pages Posted: 10 Feb 2004

See all articles by Uday Chandra

Uday Chandra

SUNY University at Albany

Charles E. Wasley

Simon School, University of Rochester

Gregory B. Waymire

Emory University - Department of Accounting

Date Written: January 5, 2004

Abstract

We investigate the extent and nature of income conservatism as reflected in the financial statement numbers of firms in the U.S. technology sector. Technology firms are predicted to have greater income conservatism than other U.S. firms because they are subject to both higher shareholder litigation risk and conservative accounting standards such as SFAS 2. In the absence of a generally accepted measure of conservatism, we examine several proxies including loss incidence and accounting rates of return, operating cash flow and non-operating accrual levels, and regression coefficients from the income timeliness models in Basu (1997). Relative to other companies, technology firms are characterized by higher (and intertemporally increasing) levels of income conservatism. These differences are both statistically and economically significant. Further analysis suggests that technology firms' higher conservatism results primarily from conservative accounting rules for R&D expensing rather than shareholder litigation risk.

JEL Classification: M41, M44, K22

Suggested Citation

Chandra, Uday and Wasley, Charles E. and Waymire, Gregory B., Income Conservatism in the U.S. Technology Sector (January 5, 2004). Simon School Working Paper No. FR 04-01. Available at SSRN: https://ssrn.com/abstract=485064 or http://dx.doi.org/10.2139/ssrn.485064

Uday Chandra

SUNY University at Albany ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States
518-442-9092 (Phone)

Charles E. Wasley (Contact Author)

Simon School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3362 (Phone)
585-442-6323 (Fax)

Gregory B. Waymire

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-6589 (Phone)
404-727-6313 (Fax)

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