Discussion of On the Asymmetric Recognition of Good and Bad News in France, Germany and the United Kingdom

Abstract

Giner & Rees (2001) report that the asymmetry in the timeliness of earnings decreases as one moves across the U. K., France and Germany. These results are similar to those previously predicted and reported by Ball, Kothari & Robin (2000). The authors extend this prior research by examining the robustness of the results to size, industry, and alternative deflator choices. More importantly, they contribute by examining the interaction between the traditional textbook definition of conservatism, which focuses on choices between accounting methods, and the more recent asymmetric timeliness definition, which focuses on the asymmetric recognition of unrealized gains and unrealized losses. Their other important contribution is to simultaneously examine the explanatory power of lagged earnings and current returns using the asymmetric conservatism predictions.The conference discussion focused on defining conservatism, the endogeneity of legal systems and business environments, and differences in cost of capital across industries and firm sizes. The following discussion examines different aspects of conservatism, and their interactions; the relative and incremental ability of lagged earnings and current returns to explain current earnings; several specification issues; estimation of cost of equity from earnings-return regressions; and why asymmetric conservatism appears to be increasing in Europe.