Work

Accounting Conservatism, Earnings Persistence, and Pricing Multiples on Earnings

Year: 2013

Type: article

Abstract: SYNOPSIS 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. JEL Classifications: M41; C23; D21; G38; N20

Source: Accounting Horizons

DOI: 10.2308/acch-50664

Authors: Lucy Huajing Chen, David Folsom, Wonsun Paek, Heibatollah Sami

Institutions: Lehigh University, Villanova University, Sungkyunkwan University, The University of Texas at El Paso

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3123301723

FWCI: 27.16

Cites: 75

Cited by: 110

Related to: 10