Guay, Wayne RVerrecchia, Robert E2023-05-222023-05-222006-10-012016-06-01https://repository.upenn.edu/handle/20.500.14332/1082We offer an economic framework for generating predictions about the demand for conservative accounting reports. We define conservatism as: More timely recognition of losses than gains as a result of the costs and benefits of reporting verifiable information by managers and/or firms being asymmetric. We also discuss Bushman and Piotroski's interpretation of the speeds of “good news recognition” and “incremental bad news recognition” in “Basu-type” regressions as separate signals about accounting conservatism. Finally, we suggest avenues for future research that seeks to investigate the links between institutions and contracts, and between contracts and conservatism© 2006. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/financial reportingconservatismtimeliness of loss and gain recognitioninternational accountingpolitical and legal institutionscontractingcompensation and incentivesdebt contractsAccountingInternational BusinessArticle