Measuring Asymmetric Timeliness using Industry Output Volume Changes as the Proxy for News

We obtain industry output volume changes from the Census Bureau for 338 six-digit NAICS code manufacturing industries and from the Centers for Medicare & Medicaid Services for skilled nursing facilities as an example of a service industry. Industry output volume changes have distinct and largely desirable features as a news proxy to measure the asymmetric timeliness of (the accrual components of) earnings to good and bad news documented by Basu (1997) and the ensuing literature. Industry output volume changes (1) are exogenous to individual firms’ economic and accounting choices, as well as minimally correlated with firm characteristics that prior research shows are associated with statistical biases in measures of asymmetric timeliness; (2) reflect both the public and the private firms in the industry; and (3) have relatively short-run implications for firm performance, so that accounting rules typically require firms to recognize these implications in operating accruals. We exploit these features to reassess the previously identified drivers of asymmetric timeliness. We find that the use of industry output volume changes as the news proxy (1) enables researchers to demonstrate conditional conservatism through the asymmetric timeliness of operating accruals but not of write-downs of long-lived assets; (2) helps distinguish the effects of curtailment and cost stickiness on asymmetric timeliness; and (3) largely eliminates statistical biases in estimates of asymmetric timeliness.