Conditional Accounting Conservatism and Future Negative Surprises: An Empirical Investigation
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2009
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Kim, B. H. & Pevzner, M. (2009). Conditional Accounting Conservatism and Future Negative Surprises: An Empirical Investigation. Journal of Accounting and Public Policy 29, 311-329 (lead article).
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We investigate whether conditional accounting conservatism has informational benefits to shareholders. We find some evidence that higher current conditional conservatism is associated with lower probability of future bad news, proxied by missing analyst forecasts, earnings decreases, and dividend decreases. Second, we find weak evidence that the stock market reacts stronger (weaker) to good (bad) earnings news of more conditionally conservative firms. Thus, we provide additional evidence that conditional conservatism affects stock prices.