Earnings asymmetric timeliness captures both accrual and operating cash flow (CFO) asymmetric timeliness. Because recognition of operating cash flows does not reflect differential verification thresholds for recognizing unrealized gains versus losses, CFO asymmetry adds noise or bias to tests of conditional conservatism. We show that CFO asymmetry is predictable in the cross-section, and varies systematically with life-cycle characteristics. Removing CFO from earnings and using accruals-based measures of asymmetric timeliness eliminates several biases that prior studies have attributed to other sources. Moreover, accrual asymmetric timeliness varies in the cross-section as theory predicts. Going forward, we recommend researchers use accruals-based asymmetric timeliness measures when testing for conditional conservatism.

The recent economic downturn resulted in firms generating significant tax losses, which they risked losing if they experienced an ownership change. In response, a number of loss firms adopted poison pill plans. We document a significant negative market reaction to the announcement of 62 poison pill adoptions related to net operating losses (NOLs), suggesting that in general investors do not consider management׳s claim that the pills are adopted to preserve a valuable tax asset to be credible. However, we find cross-sectional variation consistent with investors considering whether a pill is legitimately adopted to preserve the NOL or to entrench management.