Identifying Accounting Conservatism in the Presence of Skewness

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Date
2018
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Mcode
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Language
en
Pages
41
Series
100th Anniversary Accounting Conference Final Papers, SSRN Electronic Journal, Volume 2018, issue 1
Abstract
We demonstrate analytically and by simulation that the asymmetric timeliness (AT) coefficient in the Basu (1997) model is not a reliable measure of accounting conservatism in the presence of skewness. Specifically, a significant AT coefficient arises mechanically as a consequence of skewness in returns and/or earnings. The implication of this result is that variation in AT estimates between groups reflect variation in conditional conservatism only under conditions that are rarely met in practice. We propose an alternative approach to identify conditional conservatism based on asymmetry in the conditional probability of accrual write-offs.
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Keywords
conditional conservatism, asymmetric timeliness, earnings-return relation, accruals, write-offs
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Citation
Jarva , H & Lof , M 2018 , Identifying Accounting Conservatism in the Presence of Skewness . in 100th Anniversary Accounting Conference Final Papers . SSRN Electronic Journal , no. 1 , vol. 2018 , Temple University , Anniversary Accounting Conference , Philadelphia , Pennsylvania , United States , 09/08/2018 . https://doi.org/10.2139/ssrn.3151365