International Differences in Conditional Conservatism – The Role of Unconditional Conservatism and Income Smoothing

Abstract

Prior research documents that conditional conservatism, measured as the asymmetric timeliness of earnings reflecting bad vs. good news, varies with cross-country differences in institutional regimes. In this paper, we examine the determinants of conditional conservatism and related earnings attributes internationally. First, using panel data, we investigate whether competing earnings attributes such as unconditional conservatism and income smoothing affect conditional conservatism and its international differences. We find that these attributes are predictably correlated with conditional conservatism. Second, we address the question whether income smoothing and conditional conservatism are two fundamentally different earnings attributes. We show theoretically that both attributes yield different earnings distributions and that the motivations for producing earnings which possess these attributes differ. To test these predictions empirically, we calculate firm-specific time-series measures of asymmetric timeliness, using a novel trigonometric measure based on the standard Basu (1997)-type regression. Using this cross-sectional data, we test whether conditional conservatism and income smoothing are different and find them to be only weakly correlated for a broad international sample. Also, we demonstrate that income smoothing explains international differences in conditional conservatism. Finally, we estimate simple determinant models of conditional conservatism and income smoothing, showing that both earnings attributes are driven by different explanatory firm-level factors: Conditional conservatism increases with the importance of debt financing, while income smoothing increases with the importance of dividends. Despite some important limitations, we believe our results to be meaningful because they show that cross-country differences in conditional conservatism are influenced by the effects of other accounting properties, predominantly income smoothing. Especially, legal regime appears to drive income smoothing while losing its explanatory power for conditional conservatism when firm-specific factors are controlled for.     

Career patterns of top management team members in five countries: an optimal matching analysis

This paper introduces optimal matching analysis (OMA) to the field of top management research. With this method, we develop six career patterns of top management team (TMT) members from five countries based on their international experience, organizational tenure and professional experience. The results provide strong support for the significance of these patterns, since each country (Denmark, Germany, Japan, the United Kingdom and the United States) shows one to four predominant career patterns of their managers and the occurrence of these patterns also differs significantly between the fields of activity within the TMT (chairperson, head of a division, primary activities and support activities).     

Regain control of your international prices

Companies that strive too long for internationally differentiated pricing run the risk that prices erode. Price harmonization therefore has to be given top priority. By professionally performing the three steps described below, companies can systematically align their prices according to their customers’ purchasing behavior and thus regain control of the international pricing system.     

Driving forces of chemical risks for the European biodiversity

In the framework of the EU-funded research project ALARM (Assessing LArge-scale environmental Risks with tested Methods), an original method combining the DPSIR (driving forces–pressures–state–impacts–responses) framework and an analysis based on the distinction between the four spheres of sustainability (environmental, economic, social and political) has been developed. This paper presents the application of this method, called “the tetrahedral DPSIR” for the identification and analysis of driving forces of environmental chemicals risks for biodiversity, in Europe. The purpose of this methodology is to help reduce the pressures on biodiversity through modifying the driving forces behind them by offering scientific advice to policy makers. We frame our analysis in the context of the current policy, namely the implementation of REACH (Regulation on the Registration, Evaluation, and Authorization of CHemicals).     

MRO parts service in the machine tool industry

This article examines the post purchase Parts servicing of Machine Tools. Survey results outline the policies and criteria that influence the degree to which replacement parts will be provided for old machines. The survey indicates that the policies of some American manufacturers leave service gaps that can be exploited by foreign as well as domestic competitors.     

The potential benefits to LDCs of trade liberalization in beef and sugar by industrialized countries

Zusammenfassung Vorteile der Entwicklungsl?nder aus einer m?glichen Handelsliberalisierung für Rindfleisch und Zucker in den Industriel?ndern. - Die Studie geht von der Annahme aus, da\ die Gruppe der Industriel?nder ihre gegenw?rtigen Handelshemmnisse für Zucker und Rindfleisch aufhebt, und versucht zu ermitteln, welche potentiellen ?nderungen an Wohlfahrt und Devisenerl?sen sich daraus für die Entwicklungsl?nder ergeben. Grundlage ist ein komparativ-statisches Gleichgewichtsmodell für den Weltmarkt eines Gutes. Die Ergebnisse deuten darauf hin, da\ die Entwicklungsl?nder für beide Produkte zusammengenommen eine Steigerung ihrer Devisenerl?se um 6,6 bis über 12 Milliarden US-Dollar pro Jahr (auf der Basis von 1980) erwarten k?nnen. Das ist nicht nur absolut oder relativ sehr viel, sondern auch im Vergleich zu der laufenden Entwicklungshilfe.

---

Résumé Bénéfices potentiels des PVD à cause d’une libéralisation de commerce en viande de boeuf et sucre par les pays industrialisés. - Cette étude essaie d’identifier le changement potentiel de bien-être et des revenus en devises des PVD en supposant que le groupe des pays industrialisés éliminent leurs obstacles commerciaux actuels pour la viande de boeuf et le sucre. Le cadre essentiel est un modèle du type comparatif statique d’équilibre de marché mondial d’un seul bien. Les résultats suggèrent que pour les deux biens ensemble les PVD pourraient attendre une augmentation des revenus en devises entre 6,6 et plus que 12 milliards US $ par année (base 1980): un montant très grand non pas seulement en terme absolu ou relatif mais aussi en comparaison avec l’aide de développement pour les PVD.

---

Resumen Los beneficios potenciales de la liberalización de las importaciones de carne y azúcar en los países industrializados para los países en desarrollo. - Este trabajo intenta estimar el cambio en el bienestar y en el ingreso de divisas de los países en desarrollo, asumiendo que el grupo de países industrializados elimina las barreras al comercio actualmente vigentes para el azúcar y la carne. El marco teórico lo constituye un modelo de equilibrio de mercado para una materia prima de tipo comparativo-estático. Los resultados sugieren que para ambas materias primas los países en desarrollo podrían registrar un aumento en le ingreso de divisas entre 6,6 y 12 mil millones de dólares por a?o (a precios de 1980). Estas cifras no sólo son muy altas en términos absolutes o relativos, sino también si se las compara con los flujos de la ayuda al desarrollo.

     

Export Entry,Export Exit and Productivity in German Manufacturing Industries

This paper contributes to the flourishing literature on exports and productivity by using a unique newly available panel of exporting establishments from the manufacturing sector of Germany from 1995 to 2004 to test three hypotheses motivated by a theoretical model by Hopenhayn (Econometrica 1992): (H1) Firms that stop exporting in year t were in t?1 less productive than firms that continue to export in t. (H2) Firms that start to export in year t are less productive than firms that export both in year t?1 and in year t. (H3) Firms from a cohort of export starters that still export in the last year of the panel were more productive in the start year than firms from the same cohort that stopped exporting in between. While results for West Germany support all three hypotheses, this is only the case for (H1) and (H2) in East Germany.