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This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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This thesis investigates the asymmetric market valuation of both negative and positive special items as explained by accounting conservatism. I argue that special items, also known as nonrecurring operating gains and losses, have asymmetric market valuations, as tested using earning response coefficients (ERC). I believe that this difference in ERC between positive and negative special items can be explained by accounting conservatism. This thesis has two main findings: (1) an asymmetry exists in the valuation of positive and negative special items; and (2) the asymmetry can be explained by the idea of accounting conservatism, which is the tendency that firms report economic losses on a timelier basis than economic gains. The above two findings are supported by my empirical tests, which show that negative special items are more value relevant (i.e. have a higher ERC) than positive ones due to the fact that nonrecurring losses are impounded in earnings much quicker than nonrecurring gains. Thus, negative and positive special items are not valued equally by investors - an asymmetry exists. Furthermore, as the level of conservatism increases within a firm, this asymmetry of market valuation becomes larger, signifying that the value relevance of negative special items increases at a rate greater than that of positive special items.

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