The impact of conservatism on management earnings forecasts
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.
Year of publication: |
2009
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Authors: | Hui, Kai Wai ; Matsunaga, Steve ; Morse, Dale |
Published in: |
Journal of Accounting and Economics. - Elsevier, ISSN 0165-4101. - Vol. 47.2009, 3, p. 192-207
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Publisher: |
Elsevier |
Subject: | Management forecasts Conservatism Credibility |
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