What is it about?
We show that Basu's differential timeliness measure is affected by two aggregation biases that lead to overestimate conditional conservatism. We show that, when using proxies more robust to these biases, the differential timeliness tends to 0.
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Why is it important?
Basu's differential timeliness has become the most popular proxy for measuring conditional conservatism. Our results show, however, that the observed values for this measure can be produced by the aggregatin effect.
Perspectives
The paper help readers to know the existence of the aggregation effect and how to compute proxies that are more robust to this effect. The results also show that the differential timeliness becomes much more subtler (or even disappear) as the aggregation effect is controlled for, what can indicate that the values observed for this measure can be caused by those biases.
Dr Manuel Cano-Rodríguez
University of Jaén
Read the Original
This page is a summary of: Aggregation Bias in Estimates of Conditional Conservatism: Theory and Evidence, Journal of Business Finance & Accounting, January 2015, Wiley,
DOI: 10.1111/jbfa.12099.
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