Open AccessLong-run Accounting Conservatism and subsequent equity returns
Author(s) -
Wessel Badenhorst
Publication year - 2017
Publication title -
journal of economic and financial sciences
Language(s) - English
Resource type - Journals
eISSN - 2312-2803
pISSN - 1995-7076
DOI - 10.4102/jef.v9i1.29
Subject(s) - accrual , conservatism , equity (law) , proxy (statistics) , economics , sample (material) , accounting , financial crisis , econometrics , financial economics , monetary economics , earnings , macroeconomics , statistics , chemistry , mathematics , chromatography , politics , political science , law
This paper investigates the impact of long-run accounting conservatism on subsequent equity returns. The accounting conservatism proxy used is based on prior research and considered for different possible specifications. In contrast to prior research, this study compensates for the impact of momentum and the accrual anomaly by using five-year subsequent buy and hold total returns. A three-factor Fama and French model finds that accounting conservatism does not have a significant impact on subsequent equity returns for a sample of US firms. Stratifying the sample into pre-crisis and crisis periods does not affect results. However, this study also reveals that firms within certain industries do benefit from increased accounting conservatism, during both pre-crisis and crisis sample periods.