Estimation and empirical properties of a firm-year measure of accounting conservatism
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KhanWatts_Estimation and Empirical.PDF
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679.44 KB
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Author(s)
Khan, Mozaffar Nayim
Watts, Ross Leslie
Date Issued
September 2009
Journal
Journal of Accounting and Economics
Publisher
Elsevier
Citation
Khan, Mozaffar, and Ross L. Watts. “Estimation and empirical properties of a firm-year measure of accounting conservatism.” Journal of Accounting and Economics 48.2-3 (2009): 132-150.
Version
Author's final manuscript
Abstract
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.
MIT Department
Sloan School of Management
Terms of Use
Attribution-Noncommercial-Share Alike 3.0 Unported
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DOI of Published Version
http://dx.doi.org/10.1016/j.jacceco.2009.08.002
