Do Analysts Understand Conservatism?

Bo Ouyang and Huishan Wan

Accounting and Finance Research, 2014, vol. 3, issue 1, 1

Abstract: This study investigates whether analysts understand accounting conservatism. It is well documented that financial reporting system exhibits conservatism, that is, bad news are recognized in earnings in a more timely manner than good news. We find that analysts’ short-term earnings forecasts exhibit similar conservatism as the accounting earnings. We further find that as the forecast horizon increases the conservatism becomes weaker. On the contrary, the analysts’ long-term forecasts are not conservative. Collectively, the results suggest analysts do understand accounting conservatism.

Date: 2014
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