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Asymmetry in earnings timeliness and persistence: a simultaneous equations approach

Author

Listed:
  • William H. Beaver

    (Stanford University)

  • Wayne R. Landsman

    (University of North Carolina)

  • Edward L. Owens

    (University of Rochester)

Abstract

This study addresses simultaneity bias in piecewise linear forms of the earnings-return relation. We specify an overidentified system of simultaneous equations that incorporates both asymmetric earnings timeliness and asymmetric earnings persistence specifications and implement two-stage least squares for this piecewise linear system. Estimation of a system that is piecewise linear in endogenous variables presents several issues that are unprecedented in the accounting literature. Findings provide evidence that the asymmetric timeliness specification is particularly affected by simultaneity and that failing to correct for simultaneity results in coefficient estimates that potentially understate the degree of asymmetric earnings timeliness. Moreover, inferences regarding how conditional conservatism has evolved over time are sensitive to whether OLS or 2SLS coefficients are used as the basis of comparison.

Suggested Citation

  • William H. Beaver & Wayne R. Landsman & Edward L. Owens, 2012. "Asymmetry in earnings timeliness and persistence: a simultaneous equations approach," Review of Accounting Studies, Springer, vol. 17(4), pages 781-806, December.
    • Handle: RePEc:spr:reaccs:v:17:y:2012:i:4:d:10.1007_s11142-011-9174-3
    DOI: 10.1007/s11142-011-9174-3
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    Cited by:

    1. Anne Beatty & Reining Petacchi & Haiwen Zhang, 2012. "Hedge commitments and agency costs of debt: evidence from interest rate protection covenants and accounting conservatism," Review of Accounting Studies, Springer, vol. 17(3), pages 700-738, September.

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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