Discussion of an Economic Framework for Conservative Accounting and Bushman and Piotroski (2006)
31 Pages Posted: 24 Feb 2006
Date Written: February 6, 2006
We offer an economic framework for generating predictions about the demand for conservative accounting reports. We define conservatism as: More timely recognition of losses than gains as a result of the costs and benefits of reporting verifiable information by managers and/or firms being asymmetric. We also discuss Bushman and Piotroski's interpretation of the speeds of "good news recognition" and "incremental bad news recognition" in "Basu-type" regressions as separate signals about accounting conservatism. Finally, we suggest avenues for future research that seeks to investigate the links between institutions and contracts, and between contracts and conservatism.
Keywords: Financial reporting, conservatism, timeliness of loss and gain recognition, international accounting, political and legal institutions, contracting, compensation and incentives, debt contracts
JEL Classification: M41, M44, K22, G15, G38, O57, M40, F30, G28
Suggested Citation: Suggested Citation