Cash flow asymmetry: Causes and implications for conditional conservatism research

Collins, Daniel W.; Hribar, Paul; Tian, Xiaoli

doi:10.1016/j.jacceco.2014.08.010

Cited by 128 publications

(122 citation statements)

References 35 publications

Supporting

Mentioning

113

Contrasting

Unclassified

Order By: Relevance

“…Numerous studies verify this asymmetric effect and show that it varies in agreement with conservatism theory (e.g., Ball et al 2000;Watts 2003b;Ball et al 2013;Collins et al 2014a).…”

Section: Introductionmentioning

confidence: 63%

“…While accrual asymmetry is often interpreted as conditional conservatism (e.g., Basu 1997;Ball and Shivakumar 2006;Collins et al 2014a), it could reflect asymmetric operational effects, such as cost stickiness (Banker et al 2016b) or curtailment (Lawrence et al 2016). In Table 7, we examine some of these alternative explanations.…”

Section: Tests Of Alternative Explanations For Accrual Asymmetrymentioning

confidence: 99%

“…For example, if managers aggressively cut inventory and limit credit sales during demand decreases to avoid the risk of future write-downs, this incentive effect of conservatism can cause an asymmetry in inventory and receivables. 23 Managers might also incur additional costs to quickly adapt unprofitable projects (e.g., Collins et al 2014a;Schrand 2014), causing further asymmetries. Thus conservatism and operational asymmetries likely co-exist and are intertwined both conceptually and empirically.…”

Section: Tests Of Alternative Explanations For Accrual Asymmetrymentioning

confidence: 99%

“…show that the role of accruals differs in growing and declining firms, with much greater use of conservative accounting rules for the latter, and examine the implications for earnings persistence Hsu et al (2011Hsu et al ( , 2012. andCollins et al (2014a) argue that asymmetric timeliness models in conservatism research should be estimated using operating accruals rather than earnings but do not examine implications for accruals research.…”

mentioning

confidence: 99%

See 3 more Smart Citations

Conditional conservatism and disaggregated bad news indicators in accrual models

Byzalov

Basu

2016

Rev Account Stud

View full text Add to dashboard Cite

Conditional conservatism is an integral but often unmodeled part of the normal accrual process. The standard economic determinants of accruals contain information about unrealized losses. We argue that accountants recognize these unrealized losses as disaggregated write-downs for small asset pools. Modeling disaggregated impairments yields new economic insights about accruals and improved accrual models. We predict that accrual conservatism manifests as a sum of asymmetries for a vector of news indicators, rather than as an asymmetry for a scalar aggregate news proxy. We argue that more detailed segment-level and quarterly indicators have an incremental effect on annual firm-level accruals. We also predict a dynamic effect of successive loss indicators because accountants look for consistent patterns in these variables. Empirical results for U.S. firms support our predictions. The asymmetries in accruals are consistent with conservatism in validation tests. We also document improved statistical power and type I error in earnings management tests.

show abstract

“…Numerous studies verify this asymmetric effect and show that it varies in agreement with conservatism theory (e.g., Ball et al 2000;Watts 2003b;Ball et al 2013;Collins et al 2014a).…”

Section: Introductionmentioning

confidence: 63%

Section: Tests Of Alternative Explanations For Accrual Asymmetrymentioning

confidence: 99%

Section: Tests Of Alternative Explanations For Accrual Asymmetrymentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Conditional conservatism and disaggregated bad news indicators in accrual models

Byzalov

Basu

2016

Rev Account Stud

View full text Add to dashboard Cite

show abstract

“…In contrast, the results show that the operating cash flow has a lower contribution in the measurement of the asymmetry coefficient (Jarva 2010: 1). Similarly, Collins et al (2014) found that CFO asymmetry does not signal for recognizing unrealized gains versus unrealized losses.…”

Section: Literature Reviewmentioning

confidence: 94%

Persistence of earnings and prediction of future cash flows: the role of timely recognition of bad news

Kordestani

Taqiporian

Biglari

et al. 2016

Business: Theory and Practice

View full text Add to dashboard Cite

Timely recognition of losses and expenses compared to revenues and increased values precipitates future expenses to match with current revenues. Thus, timely recognition of losses acts to reduce the persistence of earnings. However, it is expected that a more timely recognition of negative cash flows, as bad news, increase the power of earnings for predicting future cash flows. This study investigates the effects of the timely recognition of bad news (loss) versus the good news on the decrease of the persistence of earnings, and the effect of negative cash flows on forecasting future cash flows. In this study, two pooling type models and a panel type model have been used to estimate the persistence of earnings and cash flows.

show abstract

Maßgrößen für die Qualität der Rechnungslegung

Kühnberger

2017

Kapitalmarktorientierte Rechnungslegung

View full text Add to dashboard Cite

Cash flow asymmetry: Causes and implications for conditional conservatism research

Cited by 128 publications

References 35 publications

Conditional conservatism and disaggregated bad news indicators in accrual models

Conditional conservatism and disaggregated bad news indicators in accrual models

Persistence of earnings and prediction of future cash flows: the role of timely recognition of bad news

Maßgrößen für die Qualität der Rechnungslegung

Contact Info

Product

Resources

About