Working paper
The Effect of Conditional Accounting Conservatism on the Predictive Ability of Accruals Components with Respect to Future Cash Flows
SSRN
06/26/2017
DOI: 10.2139/ssrn.2992150
Abstract
We investigate the impact of conditional conservation on the ability of accruals and its components to predict future cash flows. We first demonstrate that conditional conservatism has increased over the period from 1988 to 2013 due to an increase in timely loss recognition and asymmetric timely loss recognition. We find that while conditional conservatism that is manifest in both special-item and non-special-item accruals has increased over time, the temporal increase in conservatism is primarily attributable to non-special-item accruals. Next, we show that the increase in timely loss recognition is associated with an increase in the ability of accrual components to predict future cash flows in periods of bad news, consistent with asymmetric timely loss recognition increasing the ability of accruals to predict future cash flows. These findings stand in contrast to the belief that conditional conservatism reduces the valuation role of GAAP earnings as some have claimed
Details
- Title: Subtitle
- The Effect of Conditional Accounting Conservatism on the Predictive Ability of Accruals Components with Respect to Future Cash Flows
- Creators
- Wei Chen - University of ConnecticutDaniel W Collins - University of IowaSam Melessa - University of Iowa
- Resource Type
- Working paper
- DOI
- 10.2139/ssrn.2992150
- Publisher
- SSRN
- Number of pages
- 47 pages
- Language
- English
- Date posted
- 06/26/2017
- Date updated
- 01/05/2023
- Academic Unit
- Accounting
- Record Identifier
- 9984963228102771
Metrics
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