Discussion of “Optimal Conservatism with Earnings Manipulation” |
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| Authors: | John E. Core |
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| Affiliation: | MIT Sloan School of Management |
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| Abstract: | In this discussion, I briefly summarize the key features of Bertomeu, Darrough, and Xue's (hereafter BDX) model. I then examine the four key assumptions that BDX employ to arrive at their results: (i) firms contract only on earnings; (ii) conservative earnings are better for contracting; (iii) conservatism motivates upward earnings manipulation; and (iv) conservatism is endogenous. I then briefly conclude. |
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