THE IMPACT OF CHANGE IN CONSERVATISM FROM S-1 TO 10-K REPORT ON STOCK MARKET RETURNS

Abstract

This paper examines whether conservatism changes from IPO Prospectus (S-1) to Annual Report (10-K) filing. In particular, it examines the impact of change in conservatism from one filing to the other on stock market returns. The study uses a sample of 2,380 observations, listed in the exchanges in the US from 1996 to 2017. Accounting for firm- specific and market based factors, the analysis reveals that the greater the increase in pessmism from S-1 to 10-K filing, lower the returns on the 10-K filing date. Furthermore, the study also shows that greater conservatism in 10-K reports is directly correlated with lower returns on 10-K filing date.