Measuring Reporting Conservatism

Givoly, Dan; Hayn, Carla; Natarajan, Ashok

doi:10.2139/ssrn.606841

Cited by 179 publications

(244 citation statements)

References 53 publications

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“…Givoly et al (2007) and Ryan (2006) observe that firm level asymmetric timeliness estimates are not very stationary over time despite theory (e.g., Watts, 2003a) suggesting they would be stationary absent significant changes in the firm's characteristics. Since estimation of C_Score allows for changes in firm characteristics, we examine C_Score's ability to predict asymmetric earnings timeliness changes.…”

Section: Accounting Conservatism's Variation With the Firm's Probabilmentioning

confidence: 98%

Estimation and empirical properties of a firm-year measure of accounting conservatism

Khan

Watts

2009

Journal of Accounting and Economics

971

453

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We estimate a firm-year measure of accounting conservatism, examine its empirical properties as a metric, and illustrate applications by testing new hypotheses that shed further light on the nature and effects of conservatism. The results are consistent with the measure, C_Score, capturing variation in conservatism and also predicting asymmetric earnings timeliness at horizons of up to three years ahead. Cross-sectional hypothesis tests suggest firms with longer investment cycles, higher idiosyncratic uncertainty and higher information asymmetry have higher accounting conservatism. Event studies suggest increased conservatism is a response to increases in information asymmetry and idiosyncratic uncertainty.Both authors are at the Sloan School of Management,

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Section: Accounting Conservatism's Variation With the Firm's Probabilmentioning

confidence: 98%

Estimation and empirical properties of a firm-year measure of accounting conservatism

Khan

Watts

2009

Journal of Accounting and Economics

971

453

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“…First, Basu's (1997) measure which is the most popular measure of conservatism in the literature (see, Ryan, 2006). It has been used in numerous studies to assess the extent of accounting conservatism (Givoly et al, 2007;Beaver and Ryan, 2005). Basu's measure relates to the speed of response of accounting earnings to bad news relative to good news.…”

Section: Variables Definitions 321 Accounting Conservatism Proxiesmentioning

confidence: 99%

“…Following a number of studies (Givoly et al, 2007;Beaver and Ryan, 2005; Basu, 1997), The Basu asymmetric timeliness measure was applied in the current study as follows:…”

Section: Variables Definitions 321 Accounting Conservatism Proxiesmentioning

confidence: 99%

The Association between Accounting Conservatism and Cash Dividends: Evidence from Emerging Markets

Mousa¹

2014

IJARAFMS

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“…In either case, it results in a systematic undervaluation of the book value of the equity relative to its economic value (see Watts (2002) and Givoly et al (2007)). Note that while capital market and compensation considerations may lead public equity firms to manage earnings and thereby introduce greater estimation error in accruals, such considerations are unlikely to result in a lower level of conservatism.…”

Section: Conservatismmentioning

confidence: 99%

Does Public Ownership of Equity Improve Earnings Quality?

Givoly

Hayn

Katz

2010

The Accounting Review

Self Cite

244

156

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To better understand how equity investors influence earnings quality, we compare the quality of accounting numbers produced by two types of public firms -those with publicly-traded equity and those with privately-held equity that are nonetheless considered public by virtue of having publicly-traded debt. We develop and test two hypotheses. The "demand" hypothesis holds that earnings of public equity firms are of higher quality than earnings of private equity firms due to the stronger demand by investors and creditors stemming from, among other concerns, higher litigation risk. The "opportunistic behavior" hypothesis posits that public equity firms have lower earnings quality than their private equity peers due to management intervention in the earnings process as a result of capital market considerations as well as their own equity-based compensation. We identify a number of attributes associated with the notion of earnings quality -persistence and estimation error of accruals, prevalence of earnings management, timeliness of loss versus gain recognition (conditional conservatism) and the extent of conservatism due to the use of asset-decreasing accounting principles (unconditional conservatism). The results indicate that, consistent with the "opportunistic behavior" hypothesis, private-equity firms have higher quality accruals and a lower propensity to manage income than public equity firms. However, in line with the "demand" hypothesis, public equity firms' financial reports are generally more conservative.

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Measuring Reporting Conservatism

Cited by 179 publications

References 53 publications

Estimation and empirical properties of a firm-year measure of accounting conservatism

Estimation and empirical properties of a firm-year measure of accounting conservatism

The Association between Accounting Conservatism and Cash Dividends: Evidence from Emerging Markets

Does Public Ownership of Equity Improve Earnings Quality?

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