1. The confounding effect of cost stickiness on conservatism estimates
汇报人：邵水菊 学号：

2. Problem statement
We show that cost stickiness can be mistaken for conditional conservatism in standard models, distorting inferences about both the average level of conservatism and the extent of cross-sectional variation in conservatism.
To reduce the likelihood of spurious inference, we develop new empirical tests that separate conservatism from the confounding effect of sticky costs.

3. analysis of theories
Conservatism and sticky costs are fundamentally different phenomena:
conservatism is asymmetry in the information system that translates economic activity into accounting data, whereas cost stickiness is asymmetry in the economic activity itself.
Because the asymmetry in reported earnings can arise from either conservatism or cost stickiness, empirical models should account for both phenomena to ensure accurate inferences

4. analysis of theories
Financial accounting interprets conditional conservatism as the higher degree of verification of good news as gains than bad news as losses. Conservatism implies that earnings incorporate bad news about future cash flows more quickly than good news.
most of the major cost components are “sticky” in the sense that they rise more for sales increases than they fall for equivalent decreases.Because cost stickiness has an asymmetric effect on accruals, it biases both earnings-based and accruals- based conservatism measures in standard models, distorting inferences about the average level of conservatism. Based on this, the author put on the Hypothesis 1.

5. analysis of theories
Further, variation in conservatism can influence cost stickiness. Francis and Martin (2010), Ahmed and Duellman (2011), and Bushman et al. (2011) show that conservatism improves investment efficiency either by curbing the inefficient overinvestment associated with managers' empire-building behavior or by mitigating the inefficient underinvestment caused by frictions in capital markets. These investment patterns can affect cost stickiness.
Because the standard conservatism models do not control for the variation in cost stickiness, they are likely to mistake it for variation in conservatism. Based on this, the author put on the Hypothesis 2.

6. Hypothesis development
Asymmetric timeliness estimates in standard conservatism models have an
upward bias on average because these models do not control for cost stickiness
Hypothesis 2:
Estimates of the variation in conservatism in standard models are distorted because these models do not control for the variation in cost stickiness.

7. Data and estimation models
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8. Data and estimation models

9. conclusions
the conditional conservatism estimates in the Basu model (and in the modified models of Ball et al., 2013b and Collins et al., 2014) are overstated by more than 25% with mistaken the cost stickiness into conservatism.
In addition, the cost stickiness leads to a 49% bias in the industry difference on the conservatism estimates.

10. innovations
Combining the robustness theory of financial accounting and the theory of cost stickiness in management accounting, it is firstly concluded that the cost viscosity can produce confounding effects on robustness estimation.
Revised and improved the research methods and conclusions of Basu (1997), and found new factors that led to the estimation bias of robustness, and created a method to correct this estimate bias.
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11. shortcomings
Although the study found that cost stickiness leads to robustness estimation errors , but it is lack of in-depth analysis on the relationship of the mutual influence between them and inner mechanism of cost stickiness.
In addition, the paper was only consrdering the influence of cost stickiness for the aspect of the degree and scope of conservatism without concernning the features of the surplus.