Earnings Management, Conservatism, and Earnings Quality reviews and illustrates earningsmanagement, conservatism, and their effects on earnings quality in an economic modelingframework. Both earnings management and conservative accounting introduce biases tofinancial reports. The fundamental issue addressed is what economic effects these biaseshave on earnings quality or financial reporting quality.Earnings Management, Conservatism, and Earnings Quality reviews analytical models ofearnings management and conservatism and shows that both can have beneficial ordetrimental economic effects, so a differentiated view is appropriate. Earnings managementcan provide additional information via the financial reporting communication channel, but it canalso be used to misrepresent the firm's position. What the authors find is that similar toearnings management, conservatism can reduce the information content of financial reports ifit suppresses relevant information, but it can be a desirable feature that improves economicefficiency. The approach to study earnings management, conservatism, and earnings qualityis based on the information economics literature. A variety of analytical models are reviewedthat capture the effects and subtle interactions of managers' incentives and rationalexpectations of users. The benefit of analytical models is to make precise these, often highlycomplex, strategic effects. They offer a rigorous explanation for the phenomena and show thatsometimes conventional wisdom does not apply. The monograph is organized around a fewbasic model settings, which are presented in simple versions first and then in extensions toelicit the main insights most clearly.Section 2 presents the basic rational expectations equilibrium model with earningsmanagement and rational inferences by the capital market. Section 3 is devoted to earningsquality and earnings quality metrics used in many studies. Section 4 studies conservatism inaccounting. Finally, the authors examine the interaction between conservatism and earningsmanagement. Each section ends with a section containing a summary of the main findingsand conclusions.