Asymmetric Timeliness of Earnings and Shareholder Distributions

• Main Authors: Frankel, Richard, Sun, Yan, WANG, Rong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2008
• Subjects: Asymmetric timeliness; shareholder distributions; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research_smu/81; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1080&context=lkcsb_research_smu
• Institution: Singapore Management University

We study whether more asymmetrically timely earnings constrain payouts to shareholders in the presence of bad news. Our goal is to provide evidence on the ex post contracting benefits of accounting conservatism. We distinguish between cash flow asymmetric timeliness and accrual asymmetric timeliness to examine how each relates to asymmetric sensitivity of shareholder payouts. We find that only the asymmetric timeliness of cash flows is significantly related to the asymmetric sensitivity of shareholder payouts. Other measures of conservatism (earnings skewness and accumulated nonoperating accruals) are also not significantly related to the sensitivity of shareholder payouts given bad news. These results suggest that accounting policies do not significantly constrain shareholder distributions conditional on news that does not affect cash flows.