IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v10y2005i2d10.1007_s11142-005-1532-6.html
   My bibliography  Save this article

Conditional and Unconditional Conservatism:Concepts and Modeling

Author

Listed:
  • William H. Beaver

    (Stanford University)

  • Stephen G. Ryan

    (New York University)

Abstract

We develop a model that captures the distinct natures of and interactions between conditional and unconditional conservatism. Under unconditional conservatism, the book value of net assets is understated due to predetermined aspects of the accounting process. Under conditional conservatism, book value is written down under sufficiently adverse circumstances, but not up under favorable circumstances. The specification of earnings provided by the model yields hypotheses about how unconditional conservatism and other factors preempt conditional conservatism and so affect the asymmetric response of earnings to positive and negative share returns, both current and lagged, documented by Basu (1995, “Conservatism and the Asymmetric Timeliness of Earnings.” Ph.D. dissertation, University of Rochester’ 1997, “The Conservatism Principle and the Asymmetric Timeliness of Earnings.” Journal of Accounting and Economics 24, 3–37).

Suggested Citation

  • William H. Beaver & Stephen G. Ryan, 2005. "Conditional and Unconditional Conservatism:Concepts and Modeling," Review of Accounting Studies, Springer, vol. 10(2), pages 269-309, September.
    • Handle: RePEc:spr:reaccs:v:10:y:2005:i:2:d:10.1007_s11142-005-1532-6
    DOI: 10.1007/s11142-005-1532-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-005-1532-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-005-1532-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Basu, S., 1995. "Conservatism and the Asymmetric Timeliness of Earning," Papers 73, Rochester, Business - Ph.D.,.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dan Dhaliwal & Shawn Huang & Inder K. Khurana & Raynolde Pereira, 2014. "Product market competition and conditional conservatism," Review of Accounting Studies, Springer, vol. 19(4), pages 1309-1345, December.
    2. Hanen Ben Fatma & Jamel Chouaibi, 2025. "Corporate governance and accounting conservatism: evidence from STOXX EUROPE 600 companies," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 22(3), pages 776-790, September.
    3. Robert Ullmann & Sophia Wörle, 2025. "Strategic management of tax disclosure: asymmetric timeliness of tax footnote modifications," Review of Managerial Science, Springer, vol. 19(8), pages 2327-2372, August.
    4. Juan Manuel García Lara & Beatriz García Osma & Fernando Penalva, 2011. "Conditional conservatism and cost of capital," Review of Accounting Studies, Springer, vol. 16(2), pages 247-271, June.
    5. Ray Ball & Ashok Robin & Gil Sadka, 2008. "Is financial reporting shaped by equity markets or by debt markets? An international study of timeliness and conservatism," Review of Accounting Studies, Springer, vol. 13(2), pages 168-205, September.
    6. Frank Heflin & Charles Hsu & Qinglu Jin, 2015. "Accounting conservatism and Street earnings," Review of Accounting Studies, Springer, vol. 20(2), pages 674-709, June.
    7. Juan Manuel García Lara & Beatriz García Osma & Fernando Penalva, 2009. "Accounting conservatism and corporate governance," Review of Accounting Studies, Springer, vol. 14(1), pages 161-201, March.
    8. Sudipta Basu, 2005. "Discussion of “Conditional and UnconditionalConservatism: Concepts and Modeling”," Review of Accounting Studies, Springer, vol. 10(2), pages 311-321, September.
    9. Masako Darrough & Jianming Ye, 2007. "Valuation of loss firms in a knowledge-based economy," Review of Accounting Studies, Springer, vol. 12(1), pages 61-93, March.
    10. Maureen McNichols & Madhav V. Rajan & Stefan Reichelstein, 2014. "Conservatism correction for the market-to-book ratio and Tobin’s q," Review of Accounting Studies, Springer, vol. 19(4), pages 1393-1435, December.
    11. Jeffrey L. Callen & Dan Segal & Ole-Kristian Hope, 2010. "The pricing of conservative accounting and the measurement of conservatism at the firm-year level," Review of Accounting Studies, Springer, vol. 15(1), pages 145-178, March.
    12. J. Richard Dietrich & Karl A. Muller & Edward J. Riedl, 2007. "Asymmetric timeliness tests of accounting conservatism," Review of Accounting Studies, Springer, vol. 12(1), pages 95-124, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rahimah Mohamed Yunos Author_Email: rahim221@johor.uitm.edu.my & Malcolm Smith & Zubaidah Ismail & Syahrul Ahmar Ahmad, 2011. "Inside Concentrated Owners, Board Of Directors And Accounting Conservatism," Annual Summit on Business and Entrepreneurial Studies (ASBES 2011) Proceeding 2011-053-178, Conference Master Resources.
    2. J. Richard Dietrich & Karl A. Muller & Edward J. Riedl, 2007. "Asymmetric timeliness tests of accounting conservatism," Review of Accounting Studies, Springer, vol. 12(1), pages 95-124, March.
    3. Chung, Hyeesoo H. & Wynn, Jinyoung P., 2008. "Managerial legal liability coverage and earnings conservatism," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 135-153, September.
    4. Mohammad Khalid Al Attar & Abdel Razaq F. Altal & Haitham Y. Ali, 2016. "Measuring the Conservatism Level in the Accounting Policies and Its Effect on the Financial Information Disclosure Quality in the Jordanian Commercial Banks," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 6(3), pages 91-105, September.
    5. Jacob, John & Jorgensen, Bjorn N., 2007. "Earnings management and accounting income aggregation," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 369-390, July.
    6. Claudio E. V. Borio & Kostas Tsatsaronis, 2005. "Accounting, prudential regulation and financial stability: elements of a synthesis," BIS Working Papers 180, Bank for International Settlements.
    7. Kothari, S. P. & Zimmerman, Jerold L., 1995. "Price and return models," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 155-192, September.
    8. Paul Van Hulzen & Laura Alfonso & Georgios Georgakopoulos & Ioannis Sotiropoulos, 2011. "Amortisation Versus Impairment of Goodwill and Accounting Quality," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 4(3), pages 93-118, December.
    9. Khan, Mozaffar & Watts, Ross L., 2009. "Estimation and empirical properties of a firm-year measure of accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 132-150, December.
    10. Gopal V. Krishnan, 2005. "Did Houston Clients of Arthur Andersen Recognize Publicly Available Bad News in a Timely Fashion?," Contemporary Accounting Research, John Wiley & Sons, vol. 22(1), pages 165-193, March.
    11. Hui, Kai Wai & Klasa, Sandy & Yeung, P. Eric, 2012. "Corporate suppliers and customers and accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 115-135.
    12. Gu, Zhaoyang & Wu, Joanna Shuang, 2003. "Earnings skewness and analyst forecast bias," Journal of Accounting and Economics, Elsevier, vol. 35(1), pages 5-29, April.
    13. Banker, Rajiv D. & Basu, Sudipta & Byzalov, Dmitri & Chen, Janice Y.S., 2016. "The confounding effect of cost stickiness on conservatism estimates," Journal of Accounting and Economics, Elsevier, vol. 61(1), pages 203-220.
    14. Masatomo Akita & Yusuke Osaki, 2011. "Optimal accounting policies under financial constraints: aggressive versus conservative," Economics Bulletin, AccessEcon, vol. 31(4), pages 3179-3191.
    15. Sebastian Brauer & Frank Westermann, 2010. "A Note on the Time Series Measure of Conservatism," CESifo Working Paper Series 2968, CESifo.
    16. Henry Jarva & Matthijs Lof, 2024. "Identifying accounting conservatism in the presence of skewness," Review of Quantitative Finance and Accounting, Springer, vol. 62(2), pages 553-577, February.
    17. Dmitri Byzalov & Sudipta Basu, 2016. "Conditional conservatism and disaggregated bad news indicators in accrual models," Review of Accounting Studies, Springer, vol. 21(3), pages 859-897, September.
    18. Chi, Wuchun & Wang, Chenchin, 2010. "Accounting conservatism in a setting of Information Asymmetry between majority and minority shareholders," The International Journal of Accounting, Elsevier, vol. 45(4), pages 465-489, December.
    19. Sebastian Brauer & Frank Westermann, 2013. "On the time series measure of conservatism: a threshold autoregressive model," Review of Quantitative Finance and Accounting, Springer, vol. 41(1), pages 111-129, July.
    20. Emeka T. Nwaeze, 2000. "Positive and Negative Earnings Surprises, Regulatory Climate, and Stock Returns," Contemporary Accounting Research, John Wiley & Sons, vol. 17(1), pages 107-134, March.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:10:y:2005:i:2:d:10.1007_s11142-005-1532-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.