Recent research, due to Patatoukas and Thomas (2011) and Ball et al. (2013), focuses on Basu's (1997) conditional conservatism measure and the existence of a denominator effect — whether the difference between the earnings-return coefficients of bad and good news firms (“the Basu...

OLS-based archival accounting research encounters two well-known problems. First, outliers tend to influence results excessively. Second, heteroscedastic error terms raise the spectre of inefficient estimation and the need to scale variables. This paper applies a robust estimation approach due...