Conditional Conservatism and Reactions of Equity Investors on Management Earnings Forecasts of Firms in Thailand

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Ratchaneeya Bangmek
Ravi Lonkani
Manatip Tangeakchit
Naruanard Sarapaivanich


Manuscript type: Research paper
Research aims: This research tests the contracting efficiency of
conservatism by investigating the relationship between conditional
conservatism and the reactions of equity investors on management
earnings forecast disclosures.
Design / Methodology / Approach: The tests were conducted on
firms listed in Thailand. Conditional conservatism was measured
by using Khan and Watts’ (2009) model. The cumulative marketadjusted
abnormal returns approach was used to measure market
reactions to management earnings forecast disclosures.
Research findings: Findings show that conditional conservatism
is positively associated with cumulative excess returns around
earnings forecasts release dates. This suggests that conditional
conservatism mitigates information asymmetry by committing
managers into disclosing credible earnings forecast information.
This leads to positive reactions by equity investors.

Theoretical contributions / Originality: This paper fulfills an
identified need in studying how conservatism enhances the value
of voluntary disclosure information and how it influences market
reactions to management earnings forecast disclosures.
Practitioner / Policy implications: This paper includes implications
for the development of disclosure rules for Thai firms and for
the improvement of the prudence approach in the conceptual
accounting framework.
Keywords: Conditional Conservatism, Management Earnings
Forecast Disclosure, Shareholder Value, Stock Market Reaction
JEL Classification: G14, G17, M41


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