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Discussion of: "Acquisition profitability and timely loss recognition" by J. Francis and X. Martin

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  • Roychowdhury, Sugata

Abstract

Francis and Martin (2009) test whether accounting conservatism induces managers to make better acquisition decisions. This discussion highlights three main issues. First, the hypothesized links between conservatism and future investments are potentially incomplete. In particular, the possibility that conservatism can have dysfunctional outcomes if acquisition decisions are based on anticipated earnings effects is ignored. Second, the evidence is insufficient to infer a causal relation between conservatism and acquisition profitability. Third, the hypothesis development fails to indicate whether timely loss recognition or the asymmetric timeliness of loss versus gain recognition is the more appropriate measure of conservatism given the context.

Suggested Citation

  • Roychowdhury, Sugata, 2010. "Discussion of: "Acquisition profitability and timely loss recognition" by J. Francis and X. Martin," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 179-183, February.
    • Handle: RePEc:eee:jaecon:v:49:y:2010:i:1-2:p:179-183
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    References listed on IDEAS

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    1. Ryan Lafond & Sugata Roychowdhury, 2008. "Managerial Ownership and Accounting Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 101-135, March.
    2. Beatty, Anne & Weber, Joseph & Yu, Jeff Jiewei, 2008. "Conservatism and Debt," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 154-174, August.
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    4. Ball, Ray & Shivakumar, Lakshmanan, 2005. "Earnings quality in UK private firms: comparative loss recognition timeliness," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 83-128, February.
    5. Roychowdhury, Sugata & Watts, Ross L., 2007. "Asymmetric timeliness of earnings, market-to-book and conservatism in financial reporting," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 2-31, September.
    6. Ahmed, Anwer S. & Duellman, Scott, 2007. "Accounting conservatism and board of director characteristics: An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 411-437, July.
    7. Ronald W. Masulis & Cong Wang & Fei Xie, 2007. "Corporate Governance and Acquirer Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1851-1889, August.
    8. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    9. Givoly, Dan & Hayn, Carla, 2000. "The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 287-320, June.
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    Cited by:

    1. Bo-Hung Chiou & Shen-Ho Chang, 2020. "Influence of Investment Efficiency by Managers and Accounting Conservatism on Idiosyncratic Risks to Investors," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 10(1), pages 1-8.
    2. Martin, Xiumin & Roychowdhury, Sugata, 2015. "Do financial market developments influence accounting practices? Credit default swaps and borrowers׳ reporting conservatism," Journal of Accounting and Economics, Elsevier, vol. 59(1), pages 80-104.
    3. Li Cui & Pamela Kent & Sujin Kim & Shan Li, 2021. "Accounting conservatism and firm performance during the COVID‐19 pandemic," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5543-5579, December.
    4. García Lara, Juan Manuel & García Osma, Beatriz & Penalva, Fernando, 2016. "Accounting conservatism and firm investment efficiency," Journal of Accounting and Economics, Elsevier, vol. 61(1), pages 221-238.
    5. Suzuki, Tomohiro & Kochiyama, Takuma & 河内山, 拓磨, 2017. "Impact Of Fair Value Measurement On Corporate Investment: Other Comprehensive Income," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 51(1), pages 17-37, October.
    6. Chen-Yin Kuo, 2018. "Does Accounting Conservatism Reduce Default Risk? Evidence from Taiwan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 227-242.
    7. Lawrence, Alastair & Sloan, Richard & Sun, Yuan, 2013. "Non-discretionary conservatism: Evidence and implications," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 112-133.
    8. Badia, Marc & Duro, Miguel & Penalva, Fernando & Ryan, Stephen, 2017. "Conditionally conservative fair value measurements," Journal of Accounting and Economics, Elsevier, vol. 63(1), pages 75-98.
    9. Laux, Volker & Ray, Korok, 2020. "Effects of accounting conservatism on investment efficiency and innovation," Journal of Accounting and Economics, Elsevier, vol. 70(1).
    10. Fu, Zheng & Ma, Yechi & Li, Suyang & Qiao, Lu, 2023. "Peer performance and the asymmetric timeliness of earnings recognition," International Review of Financial Analysis, Elsevier, vol. 85(C).
    11. Roychowdhury, Sugata & Shroff, Nemit & Verdi, Rodrigo S., 2019. "The effects of financial reporting and disclosure on corporate investment: A review," Journal of Accounting and Economics, Elsevier, vol. 68(2).
    12. Ishida, Souhei & Ito, Kunio, 2013. "The Effect of Accounting Conservatism on Corporate Investment Behavior," Working Paper Series 175, Center for Japanese Business Studies (HJBS), Graduate School of Commerce and Management Hitotsubashi University.

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