Accounting conservatism, analysts’ performance and stock market liquidity

This paper investigates whether conditional accounting conservatism has informational benefits to financial market participants. Using a large sample of French firms over the period 2001-2014, we report that accounting conservatism improves the firm information environment by providing verifiable information. We specifically document that increases in accounting conservatism are associated with more accurate analyst earnings forecasts, less dispersed forecasts and less volatility in forecast revisions. We also provide evidence that increases in firm accounting conservatism lead to subsequent increases in stock market liquidity, tested on the price impact dimension. Overall, our findings are in line with conservatism being useful to financial markets participants such as financial analysts and investors.