Business, Management and Accounting
4 years ago

Earnings reports now more timely in delivering bad news than good.

1 view
SSRN Electronic Journal
The Conservatism Principle and the Asymmetric Timeliness of Earnings
Sudipta Basu

Paper Summary

Conservatism in accounting means reporting more bad news than good news in earnings. Earnings are quicker to show bad news than good news, leading to less persistent negative surprises. Earnings respond more to positive changes than negative changes, correcting for this difference. Earnings have become more conservative over time, with a stronger reaction to negative news since 1980. This increase in conservatism is linked to higher auditor liability.

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