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Conditional conservatism and cost of capital

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorGarcía-Lara, Juan M.
dc.contributor.authorGarcía Osma, Beatriz
dc.contributor.authorPenalva, Fernando
dc.date.accessioned2011-10-28T14:38:50Z
dc.date.available2011-10-28T14:38:50Z
dc.date.issued2010
dc.description.abstractWe empirically test the association between conditional conservatism and cost of equity capital. Conditional conservatism imposes stronger verification requirements for the recognition of economic gains than economic losses, resulting in earnings that reflect losses faster than gains. This asymmetric reporting of gains and losses is predicted to lower firm cost of equity capital by increasing bad news reporting precision, thereby reducing information uncertainty (Guay and Verrecchia 2007) and the volatility of future stock prices (Suijs 2008). Using standard assetpricing tests, we find a significant negative relation between conditional conservatism and excess average stock returns over the period 1975-2003. This evidence is corroborated by further tests on the association between conditional conservatism and measures of implied cost of capital derived from analysts’ forecasts
dc.description.sponsorshipWe acknowledge financial assistance from the Spanish Ministry of Education and Science (ECO2008- 06238/ECON and SEJ2007-67582/ECON), the European Commission INTACCT Research Training Network (MRTN-CT-2006-035850), IESE Research Division, and the AECA Carlos Cubillo Chair in Accounting and Auditing
dc.format.mimetypeapplication/pdf
dc.identifier.urihttps://hdl.handle.net/10016/12446
dc.language.isoeng
dc.relation.hasversionhttp://hdl.handle.net/10016/7422
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEmpresa
dc.subject.jelG10
dc.subject.jelG38
dc.subject.jelM41
dc.subject.otherConditional conservatism
dc.subject.otherAsymmetric reporting
dc.subject.otherCost of capital
dc.subject.otherInformation precision
dc.subject.otherUncertainty
dc.titleConditional conservatism and cost of capital
dc.typeworking paper*
dc.type.hasVersionSMUR*
dspace.entity.typePublication
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