Explain and compare the concepts of: (1)Share price anticipation of earnings (2)Earnings conservatism as defined in Basu (1997).

What are the implications of the above two concepts for a regression of twelve months returns on same period earnings change?

(1000 words in total)

& Economics ELSEVIER Journal of Accounting and Economics 24 (1997) 3-37 The conservatism principle and the asymmetric timeliness of earnings Sudipta Basu* Department of Accountancy, Baruch College, CUNY, 17 Lexington Avenue, New York, NY 10010, USA Received 1 May 1995; received in revised form 1 June 1997 Abstract I interpret conservatism as resulting in earnings reflecting 'bad news' more quickly than 'good news'. This interpretation implies systematic differences between bad news