 On the conditional conservatism measure: A robust estimation approachSeil Kim and James A. Ohlson Journal of Business Finance & Accounting, 2018, vol. 45, issue 3-4, 395-409 Abstract: Recent research, due to Patatoukas and Thomas (2011) and Ball, Kothari, and Nikolaev (2013), focuses on Basu's (1997) conditional conservatism measure and the existence of a denominator effect – whether the difference between the earnings†return coefficients of bad and good news firms (‘the Basu coefficient’) is only due to the beginning†of†year price deflator. We address this issue head†on by applying the Theil†Sen (TS) estimation method, which obtains the same coefficient estimate regardless of the chosen deflator and is robust to outliers. Results show the following: (i) the Basu coefficient remains positive using TS; (ii) the Basu coefficients using TS are similar to those using OLS without scaling but much smaller than shown by scaled OLS; (iii) the scaled OLS estimates appear to be influenced by a few outliers; and (iv) OLS estimates are more volatile due to estimation error. In sum, the denominator effect does not overturn Basu's hypothesis but the magnitude and variation of the Basu coefficient is much smaller than traditional results show. Date: 2018 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:45:y:2018:i:3-4:p:395-409 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker More articles in Journal of Business Finance & Accounting from Wiley Blackwell |
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