We construct empirical proxies for cash-flow timing and matching problems and provide evidence on the ability of this accrual generating factor to explain accruals. Researchers lament our meager understanding of the process that spawns accruals (Owens et al., 2013, Ball, 2013, McNichols, 2000). Our aim is to map the explanatory power boundaries demarcated by our current knowledge of the role of...

Prior research has investigated the association between executive equity compensation and earnings management but the evidence is not conclusive. We investigate this question using the quantile regression approach which allows the coefficient on the independent variable (equity compensation) to shift across the distribution of the dependent variable (earnings management). Based on a sample of 1...

A fundamental property of accrual accounting is to smooth temporary timing fluctuations in operating cash flows, indicating an inherent negative correlation between accruals and cash flows. We show that the overall correlation between accruals and cash flows has dramatically declined in magnitude over the past half century and has largely disappeared in more recent years. The adjusted R 2 from ...

This study examines the role of pre-IPO discretionary accruals in the valuation and first day initial returns of IPOs. We find that IPO offer price is unaffected whereas market closing price is positively associated with the levels of pre-IPO discretionary accruals for issuers with aggressively reported earnings. We also find that this relative over-valuation of managed earnings by the markets ...

Reliability and efficacy of accruals and cash flows which are among the most important factors affecting dividend deviation have always been in question and subject to anomalies. The presence of these anomalies in accruals and cash flows and its effect on future returns and the consequences that they can have in country’s investments are the main motives to choose this issue for the current stu...

W document considerable return comovement associated with accruals after controlling for other common factors. An accrual-based factor-mimicking portfolio has a Sharpe ratio of 0.16, higher than that of the market factor or the SMB and HML factors of Fama and French. According to rational frictionless asset pricing models, the ability of accruals to predict returns should come from the loadings...

Prior research has documented a ‘‘kink’’ in the earnings distribution: too few firms report small losses, too many firms report small profits. We investigate whether boosting of discretionary accruals to report a small profit is a reasonable explanation for this ‘‘kink.’’ Overall, we are unable to confirm that boosting of discretionary accruals is the key driver of the kink. We caution the use ...

This study examined the role of positive and negative discretionary accrual management in the stock price impact. A sample of 66 firms listed in Tehran Stock Exchange was selected for a ten-year period (2008-2017). Accrual management was found to lead to significant changes in stock prices, and uninformed investors incur trading costs caused by the stock price impact. The results showed two key...

We examine how adjustments to earnings during year-end audits affect measures of earnings quality. There are four key findings. First, audit adjustments cause earnings to become smoother and more persistent. Second, the adjustments result in higher accrual quality. Third, audit adjustments have a larger negative effect on signed accruals than absolute accruals. Fourth, the adjustments do not re...