This paper examines whether the firm-level accrual and cash flow effects extend to the aggregate stock market. In sharp contrast to previous firm-level findings, aggregate accruals is a strong positive time series predictor of aggregate stock returns, and cash flows is a negative predictor. In addition, innovations in accruals are negatively contemporaneously correlated with aggregate returns, ...

While prior research, as noted in our paper, often uses various accrual prediction models to detect earnings management, not much is known about the accuracy, both relative and absolute, associated with these models. Our paper investigates the accuracy of six different accrual prediction models, and offers the following findings. Only the Kang-Sivaramakrishnan (1995) model performs moderately w...

Earnings manipulation has become a widespread practice for US corporations. However, most studies in the literature focus on whether certain incentives would facilitate managers to manipulate earnings and there has been little evidence documenting the consequences of earnings manipulation. This paper fills this gap by examining how current accruals affect future earnings (the accrual effect) an...

We find that accruals mispricing is more pronounced for stocks with higher level of probability of informed trading (PIN). We interpret it as the evidence of informed traders using their proprietary information on accruals quality to trade against average investors. The informed traders’ arbitrage generates an annualized size and book-to-market adjusted abnormal return of 19.81% over the 1993-2...

This paper investigates the difference between two widely used measures of accruals and their differential impact on accrual strategy returns. The two measures are accruals computed using consecutive changes in the balance sheet items and accruals computed as earnings minus cash flows from operating activities, both from the cash flow statement. Our investigations reveal that the difference bet...

We investigate whether the positive associations between discretionary accrual proxies and beating earnings benchmarks hold for comparisons of groups segregated at other points in the distributions of earnings, earnings changes, and analystsbased unexpected earnings. We refer to these points as ‘‘pseudo’’ targets. Results suggest that the positive association between discretionary accruals and ...

While prior research, as noted in our paper, often uses various accrual prediction models to detect earnings management, not much is known about the accuracy, both relative and absolute, associated with these models. Our paper investigates the accuracy of six di€erent accrual prediction models, and o€ers the following ®ndings. Only the Kang ± Sivaramakrishnan (1995) model performs moderately we...

While prior research, as noted in our paper, often uses various accrual prediction models to detect earnings management, not much is known about the accuracy, both relative and absolute, associated with these models. Our paper investigates the accuracy of six different accrual prediction models, and offers the following findings. Only the Kang-Sivaramakrishnan (1995) model performs moderately w...

When corporate insiders sell their stock in quantities that deviate from firm-specific trends, their trades are more likely to precede bad news over a horizon of several months, but not in the short run. This is consistent with insiders avoiding “suspicious timing” when engaging into “suspicious amounts” of trading, the combination of which would likely result in Rule 10b-5 securities lawsuits....

We investigate whether investors price accruals quality, our proxy for the information risk associated with earnings. Measuring accruals quality (AQ) as the standard deviation of residuals from regressions relating current accruals to cash flows, we find that poorer AQ is associated with larger costs of debt and equity. This result is consistent across several alternative specifications of the ...