Conditional Accounting Conservatism and Future Negative Surprises: An Empirical Investigation

Posted: 20 Aug 2009 Last revised: 9 Sep 2010

See all articles by Bong Hwan Kim

Bong Hwan Kim

Seoul National University

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Date Written: August 19, 2009

Abstract

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.

Keywords: conservatism, future negative surprises, equity markets

JEL Classification: M41

Suggested Citation

Kim, Bong Hwan and Pevzner, Mikhail, Conditional Accounting Conservatism and Future Negative Surprises: An Empirical Investigation (August 19, 2009). Journal of Accounting and Public Policy, Vol. 29, No. 4, July-August 2010, Available at SSRN: https://ssrn.com/abstract=1457779

Bong Hwan Kim

Seoul National University ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Mikhail Pevzner (Contact Author)

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

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