In Basu's seminal paper on the Conservatism Principle and the Asymmetric Timeliness of Earnings he predicts in Hypothesis 1 that the response of reported earnings to bad news is greater than the response of reported earnings to good news. Review Basus Hypothesis 1 by discussing its (i) motivation, (ii) research design, and (iii) empirical findings. How does a Basu-style regression compare with a return-earnings regression? What are the implications of Basus findings for a regression of returns on same period earnings change?