We study whether more asymmetrically timely earnings constrain payouts to shareholders in the presence of bad news. Our goal is to provide evidence on the ex post contracting benefits of accounting conservatism. We distinguish between cash flow asymmetric timeliness and accrual asymmetric timeliness to examine how each relates to asymmetric sensitivity of shareholder payouts. We find that only the asymmetric timeliness of cash flows is significantly related to the asymmetric sensitivity of shareholder payouts. Other measures of conservatism (earnings skewness and accumulated nonoperating accruals) are also not significantly related to the sensitivity of shareholder payouts given bad news. These results suggest that accounting policies do not significantly constrain shareholder distributions conditional on news that does not affect cash flows.
Asymmetric timeliness, shareholder distributions
Finance | Finance and Financial Management
FRANKEL, Richard M.; SUN, Yan; and WANG, Rong.
Earnings asymmetric timeliness and shareholder distributions. (2008). 1-49. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5336
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