Bill Rees concluded in his discussion 7 Asymmetric J. R. Dietrich, K. A. Research on the The research evaluates the This research is based The conclusion of timeliness of Muller III, E. J. relationship research designs of on the Basu model. The the research is that accounting Riedl 2007 between earnings previous researchers. 2007 underlying intuition is the evidence conservatism and stock returns the conclusion of the strongly suggests to examine Basu model: stock that results from whether “bad” returns are driven by prior studies that news is information. In the first employ the incorporated into section they asymmetric earnings on a demonstrate that the timeliness research timelier basis than asymmetric timeliness design are “good” news. research design attributable to induces biases in biases test statistics coefficient estimates arising from the and R² measures research design, and except under very thus cannot be restrictive conditions. interpreted as In the second section evidence of the researchers conservatism. The provide estimates of main conclusion is the magnitude of that alternative biases in three research designs: empirical specifications Givoly and Hahn that use both simulated (2000), Feltham and and actual data series. Olson (1995), and Easton & Pae (2004) may offer more fruitful avenues for future investigations of accounting
Bill Rees concluded in his discussion 7 Asymmetric timeliness of accounting conservatism J. R. Dietrich, K. A. Muller III, E. J. Riedl 2007 Research on the relationship between earnings and stock returns to examine whether “bad” news is incorporated into earnings on a timelier basis than “good” news. The research evaluates the research designs of previous researchers. 2007 This research is based on the Basu model. The underlying intuition is the conclusion of the Basu model: stock returns are driven by information. In the first section they demonstrate that the asymmetric timeliness research design induces biases in coefficient estimates and R² measures except under very restrictive conditions. In the second section the researchers provide estimates of the magnitude of biases in three empirical specifications that use both simulated and actual data series. The conclusion of the research is that the evidence strongly suggests that results from prior studies that employ the asymmetric timeliness research design are attributable to biases test statistics arising from the research design, and thus cannot be interpreted as evidence of conservatism. The main conclusion is that alternative research designs: Givoly and Hahn (2000), Feltham and Olson (1995), and Easton & Pae (2004) may offer more fruitful avenues for future investigations of accounting