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law system. This characteristic strengthens the politicization of its accounting regulations (Ball et al., 2000). There is also significant divergence between the corporate governance environment in France and Anglo-American countries, making it interesting to analyze the earnings properties in French firms.

Further, over the last decade profound changes have taken place in France’s accounting regulation system, the development of its financial markets and the internationalization of French firms. These transformations provide an excellent opportunity to analyze trends in earnings properties and test the impact of various corporate characteristics on such properties.

The results of our study are consistent with former studies on asymmetric conservatism (Basu, 1997; Giner and Rees, 2001): in French companies, good news has a delayed impact on earnings, as accountants only allow the effect of such news to filter through gradually to the earnings measure. Conversely, bad news is reflected rapidly in the figures, but its effect is more transient. Except for firm size, however, none of the corporate characteristics examined can predict the accounting earnings properties of a firm. The major contribution of our study is to extend Basu’s paper by analyzing the impact of certain corporate characteristics, such as size, international financing, and audit firm used, on the changes of accounting earnings properties, as in previous studies (Basu, 1997; Giner and Rees, 2001), the model was only tested over the all firm sample.

The paper is organized as follows. Section 2 presents the models used in this study. Section 3 provides a contextual analysis, describing accounting standard-setting and capital market development in France and our hypotheses, while Section 4 provides definitions of the variables used and a description of the data collection method. Section 5 presents the statistical results, and Section 6 summarizes and concludes the study.

2. The model for incorporation of economic income into accounting income Until the late 1960s, accounting practice focused largely on accrual accounting, while research was dominated by normative theory. Stimulated by developments in the fields of finance and economics (e.g. positive economic theory, the efficient markets hypothesis and the capital asset pricing model), accounting researchers then began to use economic income as a benchmark to measure the quality of accounting income. For example, Ball and Brown (1968), basing their work on the efficient markets hypothesis, studied the link between unexpected earnings and abnormal returns. The model used is as follows:

NIit ¼ 0 þ 1Rit þ "


where NIit and Rit, respectively, denote accounting earnings yield (net income scaled by the year-end market capitalization) and annual rate of return of firm i for the fiscal year t. In this model, the rate of return is used as a proxy of the newly created economic value of the firm during the related fiscal. By studying the link between accounting value and economic value, the authors explored the capacity of accounting earnings to reflect the intrinsic value of the firm. The R2 of the regression is used as a proxy to measure the extent to which current-period accounting income (NI) incorporates current-period economic income (R), i.e. the timeliness property of accounting income. They concluded that accounting income systematically lagged behind economic

Timeliness and conservatism


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