Accounting Conservatism and Incentives: Intertemporal Considerations

2018 ◽  
Vol 93 (6) ◽  
pp. 181-201 ◽  
Author(s):  
Jonathan C. Glover ◽  
Haijin H. Lin
Keyword(s):  
Accounting Conservatism ◽  
Fine Tuning ◽  
Bad News ◽  
Good News ◽  
Accounting System ◽  
Task Setting ◽  
Downward Bias ◽  
Period Performance ◽  
Second Period

ABSTRACT We study intertemporal incentive properties of conditional accounting conservatism. Conservatism has detrimental and beneficial properties. In our first model, conservatism introduces downward bias in the first period; any understatement of first-period performance is reversed in the second period. A conservative bias is not costly in the first period but instead is costly in the second period when a new manager may be rewarded for the performance of his predecessor. In an extension on learning, we illustrate a beneficial role of conservatism in fine-tuning incentives. In the second model, conservatism is modeled as recognizing effort-independent bad news early and good news late. Recognizing bad news early can be optimal because of intertemporal rent shifting, which improves incentives via an “incentive spillback.” We also study overlapping projects (a multi-task setting) in which an interior accounting system can be optimal to avoid making one of the overlapping projects an incentive bottleneck. JEL Classifications: D21; D74; D82; D86.

scholarly journals Good news media book in regional bad news year

2019 ◽  
Vol 13 (1) ◽  
pp. 211-212
Author(s):  
Patrick Craddock
Keyword(s):  
Papua New Guinea ◽  
News Media ◽  
National Development ◽  
New Guinea ◽  
Bad News ◽  
Good News ◽  
Journalism Education ◽  
Media Ownership ◽  
The Media

Media, Information and Development in Papua New Guinea is one of the most interesting books I have on Pacific media. It is a collection of different writers, some of whom are current or former journalists. Several of the authors have direct media links as staff working with the Divine Word University in Madang, a private Christian institution. For the uninitiated, the opening chapter gives an outline of the media landscape in PNG. Other chapters explore media ownership, journalism education and the role of media national development. 

scholarly journals Persistence of earnings and prediction of future cash flows: the role of timely recognition of bad news

2016 ◽  
Vol 17 (4) ◽  
pp. 353-360
Author(s):  
Gholamreza Kordestani ◽  
Maryam Taqiporian ◽  
Vahid Biglari ◽  
Vahid Minaei
Keyword(s):  
Stock Exchange ◽  
Cash Flows ◽  
Bad News ◽  
Good News ◽  
Type Model ◽  
Panel Type ◽  
Future Cash Flows

Timely recognition of losses and expenses compared to revenues and increased values precipitates future expenses to match with current revenues. Thus, timely recognition of losses acts to reduce the persistence of earnings. However, it is expected that a more timely recognition of negative cash flows, as bad news, increase the power of earnings for predicting future cash flows. This study investigates the effects of the timely recognition of bad news (loss) versus the good news on the decrease of the persistence of earnings, and the effect of negative cash flows on forecasting future cash flows. In this study, two pooling type models and a panel type model have been used to estimate the persistence of earnings and cash flows. Seventy eight firms that were listed in the Tehran Stock Exchange during the period 2003–2010 were duly reviewed. The results of this research proved that the timely recognition of loss does not affect the persistence and the power of earnings for the purpose of forecasting future cash flows. The findings imply that conservatism does not distort persistence of earnings.

scholarly journals The limitless role of p53 in cell cycle machinery: Good news or bad news?

2006 ◽  
Vol 5 (9) ◽  
pp. 1090-1093 ◽  
Author(s):  
Paraskevi Vogiatzi ◽  
Marco Cassone ◽  
Giovanni Abbadessa ◽  
Pier Paolo Claudio
Keyword(s):  
Cell Cycle ◽  
Bad News ◽  
Good News ◽  
Cell Cycle Machinery

Conservatism, Optimal Disclosure Policy, and the Timeliness of Financial Reports

2001 ◽  
Vol 76 (4) ◽  
pp. 471-493 ◽  
Author(s):  
Frank B. Gigler ◽  
Thomas Hemmer
Keyword(s):  
Financial Reporting ◽  
Alternative Explanation ◽  
Bad News ◽  
Good News ◽  
Accounting System ◽  
Voluntary Disclosures ◽  
Accounting Earnings ◽  
Financial Reports ◽  
Disclosure Policy ◽  
Conservative Accounting

We develop a theory of the relation between biases in financial reporting and managers' incentives to issue timely voluntary disclosures. We find that firms with relatively more conservative accounting are less likely to make timely voluntary disclosures than firms with less conservative accounting. Therefore, price is more timely in reflecting the news of firms with less conservative accounting. Prior research has assumed that the timeliness by which news is impounded in price is uncorrelated with the nature of accounting earnings and has ascribed a concave earnings-return relation to the accounting system reporting bad news on a more timely basis than good news. In our theory, a concave relation is not necessarily attributable to a difference in the way the accounting system reports good vs. bad news. Rather, our prediction stems from how biases in mandatory financial reports determine which firms optimally choose to make voluntary preemptive disclosures and which do not. Hence, our theory provides an alternative explanation for the empirical findings and cautions against interpreting them as evidence that accounting is conservative. Finally, we identify means of empirically distinguishing between the alternative explanations.

scholarly journals The Implications Of Accounting Conservatism For The Relation Between Earnings And Stock Returns

2011 ◽  
Vol 6 (12) ◽  
Author(s):  
Jinhan Pae
Keyword(s):  
Stock Returns ◽  
Econometric Analysis ◽  
Accounting Conservatism ◽  
Bad News ◽  
Good News ◽  
Font Size ◽  
Robust Test ◽  
Slope Coefficient ◽  
Noise Ratio

<p class="MsoNormal" style="text-justify: inter-ideograph; text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">Characterizing accounting conservatism as the accountants&rsquo; tendency to require a higher degree of verification for recognizing good news than bad news, Basu (1997) predicts that the slope coefficient and R<sup>2</sup> in a regression of earnings on concurrent stock returns will be higher for bad news (negative stock returns) than for good news (positive stock returns). However, standard econometric analysis indicates that the R<sup>2</sup> is a function of the sensitivity of earnings to returns and the noise ratio, which is defined as the ratio of the variance of noise in earnings to the variance of noise in returns. I show that the R<sup>2</sup> from the regression of earnings on stock returns is not necessarily higher for bad news than for good news. So the test of R<sup>2</sup> is not a robust test of accounting conservatism. Consistent with the prediction, I find that the slope coefficient is higher for bad news firms reporting losses than for good news firms reporting profits, but R<sup>2</sup> is lower for bad news firms reporting losses than for good news firms reporting profits. </span></span></p>

Patient autonomy and consent to treatment: the role of the law?

Legal Studies ◽  
1987 ◽  
Vol 7 (2) ◽  
pp. 169-193 ◽  
Author(s):  
Margaret Brazier
Keyword(s):  
Clinical Judgment ◽  
Patient Autonomy ◽  
Medical Decision Making ◽  
Medical Practitioner ◽  
Bad News ◽  
Good News ◽  
Medical Decision ◽  
Consent To Treatment ◽  
Medical Litigation

Until recently claims for damages by patients against their doctors were rare in England. Patients who did pursue such claims often found scant sympathy from Her Majesty's judges. The clinical judgment of the medical practitioner was accorded something very like immunity from suit. Since 1980 the pace of medical litigation has quickened dramatically. Patients seem less and less willing to accept without complaint the results of unsuccessful or injurious treatment. They are more and more inclined to question their doctor's judgment. Medical litigation and scrutiny of medical decision making is highly newsworthy in 1987. The practice of medical litigation looks set to become profitable for lawyers. To the cynical oberver all this might look like good news for lawyers and bad news for doctors.

scholarly journals Safety and Knowledge in God

2014 ◽  
Vol 6 (2) ◽  
pp. 81-100
Author(s):  
T. J. Mawson
Keyword(s):  
Religious Beliefs ◽  
True Belief ◽  
Bad News ◽  
Good News ◽  
Necessary Condition ◽  
Philosophical Reflection ◽  
Knowing That ◽  
Safety Condition ◽  
Reformed Epistemology

In recent ‘secular’ Epistemology, much attention has been paid to formulating an ‘anti-luck’ or ‘safety’ condition; it is now widely held that such a condition is an essential part of any satisfactory post-Gettier reflection on the nature of knowledge. In this paper, I explain the safety condition as it has emerged and then explore some implications of and for it arising from considering the God issue. It looks at the outset as if safety might be ‘good news’ for a view characteristic of Reformed Epistemology, viz. the view that if Theism is true, many philosophically unsophisticated believers probably know that it’s true. A (tentatively-drawn) sub-conclusion of my paper though suggests that as safety does not by itself turn true belief into knowledge, the recent focus on it is not quite such good news for Reformed Epistemologists as they may have hoped: it’s not that safety provides a new route by which they can reach this sort of conclusion. But safety is still good news for their view at least in the sense that there is no reason arising from considering it to count these philosophically unsophisticated believers as not knowing that there’s a God. I conclude by reflecting that good news for Reformed Epistemology is perhaps bad news for the discipline of Philosophy of Religion more generally, as there’s a possible ‘reflection destroys knowledge’-implication to be drawn. Those who have been led to their religious beliefs in at least some philosophically unsophisticated ways seem to enjoy much safer religious beliefs than those who have been led to their religious beliefs by philosophical reflection, so the discipline as a whole will be adversely affected if safety is eventually accorded the role of a necessary condition for knowledge.

scholarly journals Accounting conservatism in Portugal: similarities and differences facing Germany and the United Kingdom

2007 ◽  
Vol 11 (spe2) ◽  
pp. 163-188 ◽  
Author(s):  
Leonor Fernandes Ferreira ◽  
Juan Manuel García Lara ◽  
Tiago Gonçalves
Keyword(s):  
United Kingdom ◽  
Balance Sheet ◽  
Accounting Conservatism ◽  
Good News ◽  
Accounting System ◽  
Accounting Standard ◽  
Book Value ◽  
Valuation Model ◽  
The United Kingdom ◽  
Accounting Standard Setting

This paper examines the existence of conservative practices in the Portuguese accounting system, and whether these conservative practices affect the comparability of financial information provided by companies. We particularly examine whether the book value figure can be understated due to conservative practices to protect creditors' interests (balance sheet conservatism) and whether accountants delay the recognition in earnings of good news, while they recognize immediately bad news (earnings conservatism). Using a Basu (1997) type reverse regression and a simple adaptation of the Ohlson (1995) valuation model, the paper gives evidence concerning the existence of both definitions of conservatism in Portuguese accounting practices. A sample of non-financial Portuguese, German and British companies was used. Our results also show the larger earnings conservatism of British firms relative to Portugal and Germany, and surprisingly, that Portugal is more BS (larger understatement of shareholders' equity) conservative than the United Kingdom. The results have implications for accounting standard setting and they can be useful for both the European Commission and the IASB since they provide some insight into the properties of accounting figures in Portugal.

Sign in / Sign up

Export Citation Format

Share Document