Download or read book Accounting Conservatism Earnings Quality and Stocks Mispricing written by Batool Abdeldayem and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Accounting Conservatism and the Stock Market written by Carlo D’Augusta and published by Springer Nature. This book was released on with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Accounting Conservatism and the Effects of Earning Quality on the Return of Assets and Stock Return written by MEHDI. SADIDI and published by . This book was released on 2018 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Decision making in the economic affairs needs information. The shortage of information causes the ambiguity of the decision making process. The financials provide some of the needed information of this process. The perception of the earnings as the most important information source of the company was being supported by empirical studies. The mentioned researches have shown that the decision makers anchor on the accounting earnings more than any other benchmarks. The purpose of the following research is to help investors and other users to be able to assess the degree of the effects of the conservatism on the earning quality and ROI. The results show that the earning quality index presented based on the conservatism index has the ability to describe some of the differences between return on the operational assets and the current stock returns from the current year to the next year. In other word, economic entities that use the conservative procedures are able to change the earning quality with making some changes in the investments of the operational assets.

Download or read book Accounting Conservatism the Quality of Earnings and Stock Returns written by Stephen H. Penman and published by . This book was released on 2011 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quality of earnings questions arise when firms that practice conservative accounting change the level of their investment in net operating assets: increases in net operating assets create quot;hidden reserves,quot; depressing earnings, and decreases in investment release hidden reserves into earnings. This paper develops diagnostics that capture this joint effect of investment and conservative accounting and finds that the diagnostics forecast differences in future return on net operating assets from the current return on net operating assets. Moreover, the diagnostics forecast stock returns, indicating that the stock market does not appreciate how conservatism and investment combine to raise quality questions about reported earnings.

Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.

Download or read book Earnings Management Conservatism and Earnings Quality written by Ralf Ewert and published by . This book was released on 2012 with total page 133 pages. Available in PDF, EPUB and Kindle. Book excerpt: This monograph reviews economic models that study earnings management and conservatism in an information economics framework. Both introduce a deliberate or a mandatory bias in financial reports. The fundamental issue this monograph addresses is what economic effects these biases have on earnings quality. We focus on models of managers in firms interacting with rational capital market participants, and briefly consider some contracting models. The models allow us to analyze earnings management and rational inferences by market participants in equilibrium in a variety of settings and to pinpoint costs and benefits of earnings management. We discuss how investors can elicit the maximum information from the biased reports and what potential remedies actually achieve in equilibrium. For example, accounting standards that reduce discretion for earnings management may be detrimental from a welfare point of view. In rational expectations models earnings quality can be defined as the information content in reported earnings. We discuss the earnings response coefficient, value relevance, and accounting-based earnings quality measures and how they reflect changes in earnings quality. Further, we review analytical work on conservatism of accounting standards and why conservatism can be welfare-enhancing even though it introduces a bias in the earnings reports. It is exactly through this bias that the benefit arises. Therefore, a differentiated view of earnings management and conservatism is warranted; neither is principally desirable or undesirable, but this depends on the circumstances. The benefit of equilibrium models is that they offer a rigorous explanation for the phenomena and show that sometimes conventional wisdom does not apply. There exist subtle interactions between accounting standards, the institutional environment, and earnings management that lead to several insights that challenge conventional wisdom. The models describe the economics behind these results and the particular circumstances.

Download or read book Accounting Conservatism Earnings Persistence and Pricing Multiples on Earnings written by Lucy Huajing Chen and published by . This book was released on 2014 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effect of accounting conservatism on earnings persistence and the stock market's valuation of earnings. Using a sample of U.S. companies during the period of 1988-2010, we find that firms with more conservative accounting generate less persistent earnings than firms with less conservative accounting. We also document that the pricing multiple on more conservative earnings is smaller than pricing multiples on less conservative earnings. Finally, we show that conditionally conservative earnings are less persistent than unconditionally conservative earnings and the pricing multiple on earnings is smaller for conditionally conservative earnings than for unconditionally conservative earnings. Our results improve our understanding of the characteristics of conservatively-reported earnings.

Download or read book Accounting Conservatism Quality of Accounting Information and Crash Risk of Stock Prices written by Dimitrios V. Kousenidis and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: From an information perspective, sources of risk should be reflected in accounting fundamentals. However, asymmetry in disclosure generated from a decrease in information flow to users of financial statements may lead to a stock price crash when the news is eventually disclosed. The present study examines the impact of a number of accounting and auditing attributes that have been found to improve reporting efficiency on the prediction of stock price crash risk. The results indicate a negative relation between conditional conservatism and future stock price crash risk, which supports evidence in the existing literature but more importantly provide new evidence by showing that unconditional conservatism is also negatively related to future stock price crash risk. In addition some evidence shows that the level of unconditional conservatism affects the relation between conditional conservatism and future stock price crash risk. On the other hand, auditing attributes do not seem to have predictive ability for stock price crash risk while in consistency with the literature the relation between lagged earnings opacity and stock price crash risk is positive. Taken together, the results imply that researchers should disentangle the effects of the two forms of conservatism when assessing the likelihood of a future stock price crash and that the beneficial role of conservatism in reducing stock-crash risk should not be overlooked.

Download or read book Accounting Conservatism and Earning Quality written by Marselinus Asri and published by . This book was released on 2017 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose research is to examine other variables that also affect the relationship between conservatism and earnings quality. Good Corporate Governance is a set of mechanisms that can protect minority shareholders from expropriation by managers and insider shareholders with an emphasis on legal mechanisms.Data Population are companies listed in Indonesia Stock Exchange during the period 2010-20015. The sample selection is based on purposive sampling method with the purpose of obtaining a representative sample. The results of this study indicate that the Instrumental Variables Conservatism has a significant positive effect on the Earning Quality. This means that management positively signals the application of accounting conservatism within the company and has an impact on improving the quality of earnings. The next investor is expected to provide more valuations by providing a high premium for the company's stock price.

Download or read book Conditional and Unconditional Conservatism written by Julia Nasev and published by Springer Science & Business Media. This book was released on 2009-12-28 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt: Julia Nasev examines the impact of conservative accounting numbers on valuation estimates and on real economic decisions such as cost stickiness.

Download or read book Conservatism Analyst Ability and Forecast Error written by Henock Louis and published by . This book was released on 2014 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We posit that, because incorporating the effect of accounting conservatism on earnings forecasts likely requires a higher degree of sophistication, the ability to adjust earnings forecasts for conservatism should vary across security analysts. Consistent with this conjecture, we find that less experienced analysts are less able to account for the effect of conservatism when forecasting earnings. More specifically, we find that the initial optimism in analyst forecasts increases with accounting conservatism and that this relation significantly decreases with analyst experience. This finding has several implications. First, it indicates that the lack of sophistication by some analysts is likely one reason for the apparent bias in the initial forecast documented. Second, it suggests that conservatism could under certain circumstances result in stock mispricing. Third, it calls for a greater emphasis on the cross-sectional determinants of conservatism in accounting and financial statement analysis curriculums.

Download or read book Accounting Conservatism Earnings Quality and Firm Valuation written by Ling-Ching Chan and published by . This book was released on 2005 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Conservatism Earnings Persistence and the Accruals Anomaly written by Gulraze Wakil and published by . This book was released on 2011 with total page 227 pages. Available in PDF, EPUB and Kindle. Book excerpt: A consequence of accruals anomaly is the ability to make significant abnormal returns by using information about the components of accounting earnings - accruals and cash flows. Surprisingly, these abnormal returns from the mispricing of stocks due to accruals are still found by accounting and finance researchers even though the accruals anomaly was initially identified in 1996. The prominent reason for the accruals anomaly is that the persistence of accruals in predicting future earnings is misinterpreted by investors. Sloan (1996) found that stock prices do not instantaneously capture the differential persistence of accruals and cash flows. In other words, investors tend to overprice accruals and under price cash flows when developing earnings expectations. As a result, high accrual firms earn negative abnormal returns and low accrual firms earn positive abnormal returns in the future when accruals turn out to be less persistent than cash flows. This study examines how accounting conservatism affects accrual persistence and, in turn, the ability to earn abnormal returns. Conservative accounting practice results from recognizing losses in a timely manner and reporting lower book values. Relying on contracting theory, I split conservatism into contracting, litigation, regulation, and taxation explanations (Watts, 2003). Specifically, I investigate: (1) How is the persistence of different magnitudes of accruals affected by overall degree of conservatism and each of the conservatism explanations? (2) What effect does the overall degree of conservatism and each of the conservatism explanations have on the accruals anomaly? Consistent with expectations, the findings show that accounting conservatism increases the persistence of accruals in high accrual firms. This increase in persistence is also supported by conservatism explained by contracting and litigation. Additionally, the increased persistence from overall degree of conservatism is shown to lower accrual anomaly of high conservatism and high accrual firms. These results are further supported by the market efficiency tests using the Mishkin (1983) model. The dissertation contributes to the literature by revealing the relationship between conservatism, accruals anomaly, and security returns, which has not been documented before at the firm-level. These findings should have broad implications for accounting standards setters and investors. The FASB has recently expressed concerns about conservatism's lack of neutrality. This study lends support for retaining accounting conservatism in financial reporting by demonstrating that conservatism increases the persistence of accruals and reduces future negative abnormal returns of high accrual firms. The latter result indicates that greater conservatism could potentially reduce the accruals anomaly from high accrual firms.

Download or read book Accounting Conservatism Or Earnings Management written by Timothy Bryan and published by Dissertation Discovery Company. This book was released on 2019-08-07 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper empirically examines the relationship between conservatism and earnings management in chemical and allied products manufacturers via an analysis of the allowance for doubtful accounts and bad debt expense. Results indicate that the allowance for doubtful accounts is overstated and has become more overstated since 2004. In addition, results show that firms utilized the excessive conservatism to manage earnings to achieve earnings goals throughout the study period. An important overall inference from these results is that the traditional view of the allowance for doubtful accounts as unconditional conservatism is, in fact, conditional conservatism. Dissertation Discovery Company and Jacksonville University are dedicated to making scholarly works more discoverable and accessible throughout the world. This dissertation, "Accounting Conservatism or Earnings Management" by Timothy Gordon Bryan, was obtained from Jacksonville University and is being sold with permission from the author. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation.

Download or read book Financial Statement Analysis and Security Valuation written by Stephen H. Penman and published by . This book was released on 2010 with total page 754 pages. Available in PDF, EPUB and Kindle. Book excerpt: Valuation is at the heart of investing. A considerable part of the information for valuation is in the financial statements.Financial Statement Analysis and Security Valuation, 5 e by Stephen Penman shows students how to extract information from financial statements and use that data to value firms. The 5th edition shows how to handle the accounting in financial statements and use the financial statements as a lens to view a business and assess the value it generates.

Download or read book Value of Cash Holdings and Accounting Conservatism written by Henock Louis and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We posit that accounting conservatism could mitigate the value destruction associated with increases in cash holdings. Consistent with this conjecture, we find that the market value of an additional dollar in cash holdings increases in accounting conservatism. This result is robust to controlling for strength of corporate governance, earnings quality, past stock performance, potential unobserved firm heterogeneity, potential endogenous changes in conservatism, and other relevant variables. Most of the discussion about conservatism in the literature is about its role in mitigating conflicts of interest between owners/managers and debtholders and in reducing the cost of debt. Our analysis suggests that accounting conservatism also mitigates agency costs related to incentive conflicts between shareholders and managers by inducing a more efficient use of cash holdings by managers, thereby providing direct benefits to shareholders. The notion that accounting conservatism would reduce managers' incentives to engage in value-destroying projects has long been suggested in the literature. However, our study is the first to empirically establish that accounting conservatism increases the value of cash holdings. This evidence is particularly important in light of the tremendous growth in cash holdings in the U.S. in recent years (Bates, Kahle, and Stulz 2009) and the massive value losses that can result from cash holdings (Jensen and Walkling 2010).

Download or read book Accounting Conservatism and Earnings Quality written by Farzaneh Nassir Zadeh and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Purpose -- The study on the relationship between accounting conservatism and earnings quality is not new. However, the results are inconsistent and mixed, and to some degree, even contradictory, which represents a gap in the literature. The purpose of this study is to provide some explanations for these mixed results in the literature by investigating the effect of corporate governance mechanisms, as a moderator variable (which has not been considered in the literature before), on the relationship between accounting conservatism and earnings quality based on the Dechow and Dichev model and the modified Jones model. Design/methodology/approach --The statistical model used in this study is a multivariate regression model; furthermore, the statistical technique used to test the hypotheses is panel data. Findings --The findings reveal that the adopted models Dechow and Dichev) and the corporate governance mechanisms (such as board independence, large shareholders, and institutional ownership) can have a moderating effect on the relationship between accounting conservatism and earnings quality. These findings are exciting, contribute to the current literature, and explain some of the reasons for mixed results. Practical implications -- The findings of the current study provide an important guideline for firms to consider the impact of adopted models (Dechow and Dichev), as well as the corporate governance mechanisms (such as board independence, large shareholders, and institutional ownership) on the relationship between accounting conservatism and earnings quality. Originality/value -- Examining the impact of Dechow and Dichev models as well as the corporate governance mechanisms on the relationship between accounting conservatism and earnings quality is new in this paper. It can explain part of the reasons for the mixed and inconsistent results in the literature.