In their paper “Asymmetric Reporting,” Armstrong, Taylor, and Verrecchia (2016; hereafter, ATV) show that conservative financial reporting can arise in a pure capital market valuation setting. This result is remarkable because prior literature on conservatism focuses mostly on contracting (stewardship) uses of financial reporting. Analytical research typically studies owner-lender or owner-manager agency problems and finds that biased information systems are generally preferable to neutral systems. The empirical literature also stresses the contracting use, particularly debt contracting, as the main reason for conservatism. While this literature is important in its own right, the Conceptual Frameworks of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) emphasize the decision-usefulness of financial reporting to capital providers (which is broadly equivalent to ATV's valuation role of accounting) and mention stewardship only as a subordinate objective. A typical presumption in the standard-setting discussion is that decision-usefulness is best served by...
