Identifying accounting conservatism in the presence of skewness

Henry Jarva, Matthijs Lof*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

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The asymmetric timeliness (AT) coefficient as a measure of accounting conservatism has been subject to much debate. We clarify the conditions under which the AT coefficient identifies accounting conservatism in the presence of skewness. Specifically, using an extensive simulation-based approach, we examine the joint impact of return skewness, earnings skewness, and return endogeneity. We show that skewness of returns and earnings distorts the AT coefficient as a measure of conservatism when returns are endogenous. While earnings skewness is a predicted consequence of conditional conservatism, return skewness is arguably unrelated to conservative reporting and cannot be tackled by simple skew reducing transformations or outlier-robust estimators. Empirically, we analyze AT and skewness of firms sorted on size and MTB, highlighting the importance of constant skewness across groups for accurate comparisons of accounting conservatism.

Original languageEnglish
Pages (from-to)553-577
Number of pages25
JournalReview of Quantitative Finance and Accounting
Issue number2
Early online date8 Oct 2023
Publication statusPublished - Feb 2024
MoE publication typeA1 Journal article-refereed


  • Asymmetric timeliness
  • Conditional conservatism
  • Piecewise linear regression
  • Skewness


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