The impact of conservatism on management earnings forecasts

Kai Wai Hui, Steve Matsunaga and Dale Morse

Journal of Accounting and Economics, 2009, vol. 47, issue 3, pages 192-207

Abstract: We investigate the empirical relation between a firm's accounting conservatism and management's issuance of quantitative earnings forecasts. Using three measures of conservatism from prior literature, along with two aggregate measures, we find a negative association between conservatism and the frequency, specificity, and timeliness of management forecasts. The results are robust to estimating the regression in changes, using firm fixed-effects, and using a two-stage instrumental variables approach. Overall, these results suggest that accounting conservatism acts as a substitute for management forecasts by decreasing information asymmetry in the market and reducing potential litigation through the timely reporting of bad news.

Keywords: Management; forecasts; Conservatism; Credibility (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jaecon:v:47:y:2009:i:3:p:192-207

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