The pricing of conservative accounting and the measurement of conservatism at the firm-year level

@article{Callen2010ThePO,
  title={The pricing of conservative accounting and the measurement of conservatism at the firm-year level},
  author={Jeffrey L. Callen and Dan Segal and Ole{\^a}€ Kristian Hope},
  journal={Review of Accounting Studies},
  year={2010},
  volume={15},
  pages={145-178}
}
This paper analyzes the relation between equity prices and conditional conservatism and introduces a new measure of conservatism at the firm-year level. We show that the asymmetric properties of conservative accounting, the existence of non-accounting sources of information, and the properties of GAAP related to special items combine to generate a nonlinear relation between unexpected equity returns and earnings news (the shock to expected current and future earnings). Based on this model, we… CONTINUE READING
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