<![CDATA[This research examines earnings response coefficient (ERC) ofcompanies applying conservatism and more optimistic accounting.Conservatism accounting practices are expected to affect companies’ ERCindirectly. Conservative accounting would influence earnings predictionpower (Panman and Zhang, 2002). Then, earnings prediction power wouldinfluence ERC (Lipe, 1990).The population consists of manufacturing companies listed on theJakarta Stock Exchange during period of 1999-2005. Sample members of 91companies are selected using purposive sampling method. Conservativeaccounting is proxied by earnings/stock return relation measure,earnings/accrual measure, and net asset measures (Watts, 2003).The result shows that companies which apply conservative accountinghave weaker earnings prediction power than those which do not. Companieswith conservative accounting would have fluctuated earnings and lowprediction power of earnings.ERC of companies with conservative accounting are lower than thosewith more optimistic accounting. Applying conservative accounting wouldresult in fluctuated earnings and lower earnings predictability which is lessbeneficial in predicting future earnings, thus ERC would be low.]]>
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