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The Effect of Earnings Management on the Asymmetric Timeliness of Earnings

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  • Juan Manuel García Lara
  • Beatriz García Osma
  • Araceli Mora

Abstract

Is earnings management affecting (driving) the measures of earnings conservatism?Ball et al. (2000) point out that the asymmetry in the recognition of good and bad news in earnings (faster recognition of bad news: earnings conservatism) is more pronounced in common‐law than in code‐law based accounting regimes. However, comparative studies on earnings conservatism in Europe have failed to identify significant differences between common‐law and code‐law based countries. We argue that in code‐law based countries managers have incentives to reduce earnings consistently. This enhances the association between earnings and returns in bad news periods. We find that after controlling for discretionary accruals, the differential earnings response to bad news in Germany and France decreases significantly.

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  • Juan Manuel García Lara & Beatriz García Osma & Araceli Mora, 2005. "The Effect of Earnings Management on the Asymmetric Timeliness of Earnings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(3‐4), pages 691-726, April.
    • Handle: RePEc:bla:jbfnac:v:32:y:2005:i:3-4:p:691-726
    DOI: 10.1111/j.0306-686X.2005.00610.x
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