How Timely are Earnings when Costs are Sticky? Implications for the Link between ConditionalConservatism and Cost Stickiness

We interpret cost stickiness, i.e., the manager’s decision to bear the costs of unutilized resources whensales decline, as a risky project and examine its impact on conditional conservatism. We find that coststickiness increases the asymmetric timeliness of earnings by weakening the timeliness of earnings forgood news firms and, at the same time, intensifying the timeliness of earnings for bad news firms.Additionally, the results suggest that the asymmetric timeliness of earnings for cost sticky firms is morestrongly driven through accounting factors, as reflected in accruals than through non-accounting factors,as reflected in cash flow...