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Do Analysts Understand Conservatism?

Author

Listed:
  • Bo Ouyang
  • Huishan Wan

Abstract

This study investigates whether analysts understand accounting conservatism. It is well documented that financial reporting system exhibits conservatism, that is, bad news are recognized in earnings in a more timely manner than good news. We find that analysts’ short-term earnings forecasts exhibit similar conservatism as the accounting earnings. We further find that as the forecast horizon increases the conservatism becomes weaker. On the contrary, the analysts’ long-term forecasts are not conservative. Collectively, the results suggest analysts do understand accounting conservatism.

Suggested Citation

  • Bo Ouyang & Huishan Wan, 2014. "Do Analysts Understand Conservatism?," Accounting and Finance Research, Sciedu Press, vol. 3(1), pages 1-1, February.
    • Handle: RePEc:jfr:afr111:v:3:y:2014:i:1:p:1
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    References listed on IDEAS

    as
    1. Pope, PF & Walker, M, 1999. "International differences in the timeliness, conservatism, and classification of earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 37, pages 53-87.
    2. Harrison Hong & Jeffrey D. Kubik, 2003. "Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts," Journal of Finance, American Finance Association, vol. 58(1), pages 313-351, February.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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