Estimation and empirical properties of a firm-year measure of accounting conservatism
Mozaffar Khan and
Ross L. Watts
Journal of Accounting and Economics, 2009, vol. 48, issue 2-3, 132-150
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 3 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.
Keywords: Conservatism; Asymmetric; timeliness; Firm-year; measure; Information; asymmetry; Litigation (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:48:y:2009:i:2-3:p:132-150
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Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts
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