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The impact of conservatism on management earnings forecasts

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  • Hui, Kai Wai
  • Matsunaga, Steve
  • Morse, Dale

Abstract

We investigate the empirical relation between a firm's accounting conservatism and management's issuance of quantitative earnings forecasts. Using three measures of conservatism from prior literature, along with two aggregate measures, we find a negative association between conservatism and the frequency, specificity, and timeliness of management forecasts. The results are robust to estimating the regression in changes, using firm fixed-effects, and using a two-stage instrumental variables approach. Overall, these results suggest that accounting conservatism acts as a substitute for management forecasts by decreasing information asymmetry in the market and reducing potential litigation through the timely reporting of bad news.

Suggested Citation

  • Hui, Kai Wai & Matsunaga, Steve & Morse, Dale, 2009. "The impact of conservatism on management earnings forecasts," Journal of Accounting and Economics, Elsevier, vol. 47(3), pages 192-207, June.
    • Handle: RePEc:eee:jaecon:v:47:y:2009:i:3:p:192-207
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    References listed on IDEAS

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