Newly public companies tend to exhibit abnormally high accruals in the year of their initial public offering (IPO). Although the prevailing view in the literature is that these accruals are caused by opportunistic misreporting, we show that these accruals do not appear to benefit managers and instead result from the normal economic activity of newly public companies. In particular, and in contr...

Accounting accruals anticipate future economic benefits. They are intended to reverse upon the realization of the anticipated future benefits, such that their reversals have no net impact on future earnings. In practice, however, we show that extreme accruals exhibit a high frequency of subsequent reversals that do impact future earnings. We demonstrate that these reversals explain a number of ...

We investigate the association between errors in management forecasts of subsequent year earnings and current year accruals. In an uncertain operating environment, managers’ assessments of their firms’ business prospects are imperfect. Since managers’ imperfect business assessments influence both accruals generation and earnings projection, we hypothesize that management earnings forecasts exhi...

This study investigates the effect of analyst coverage on both accrual-based and real earnings management. Regarding accrual-based earnings management, I find that firms followed by more analysts engage in less accruals management and that more experienced analysts seem to be more effective in constraining accruals management, consistent with the role of analysts as external monitors to manager...

Title of Dissertation: An Alternative Measure to Detect Intentional Earnings Management through Discretionary Accruals Salma S. Ibrahim, 2005 Dissertation Directed By: Professor Oliver Kim, Accounting and Information Assurance Department This study proposes an alternative measure of discretionary accruals that can be used in testing for intentional earnings management. Prior research has shown ...

This paper hypothesizes that more active informed trading and intense information production help investors detect the low persistence of accruals, and consequently reduce the magnitude of accruals mis-pricing. Applying both the Mishkin (1983) and the hedge-portfolio tests to subsamples sorted on the basis of a two-way classification – accruals and one of the information production measures, we...

The accruals anomaly—the negative relationship between accounting accruals and subsequent stock returns—has been well documented in the academic and practitioner literatures for almost a decade. To the extent that this anomaly represents market inefficiency, one would expect sophisticated investors to learn about it and arbitrage the anomaly away. Yet, we show that the accruals anomaly still pe...

The main purpose of this research is to evaluate the role of the company life cycle in providing an appropriate model in predicting the quality of discretionary accruals (Abnormal) using the Dickinson Cash Flow Model approach. The statistical population of the research consisted of 180 company observations that were divided into three stages of life cycle using Dickinson's model variables (2011...

SYNOPSIS: Earnings management remains a popular topic of debate and discussion among investors, regulators, analysts, and the public. One mechanism that might mitigate earnings management is auditors’ industry expertise. Using a large sample of clients of Big 6 auditors, this research examines the association between auditor industry expertise, measured in terms of both auditor market share in ...

Sloan (1996) is the first to document the accruals anomaly, the negative relation between accruals and subsequent stock returns. In this paper I investigate the effects of the recent and prominent adoption of fair-value accounting on the market valuation of accruals. Using a sample of firm-years from 2003 to 2005, I find that investors rationally price different earnings components when setting...