The market pricing of accruals quality

Published

Journal Article

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 AQ metric. We also distinguish between accruals quality driven by economic fundamentals (innate AQ) versus management choices (discretionary AQ). Both components have significant cost of capital effects, but innate AQ effects are significantly larger than discretionary AQ effects. © 2005 Elsevier B.V. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Francis, J; LaFond, R; Olsson, P; Schipper, K

Published Date

  • June 1, 2005

Published In

Volume / Issue

  • 39 / 2

Start / End Page

  • 295 - 327

International Standard Serial Number (ISSN)

  • 0165-4101

Digital Object Identifier (DOI)

  • 10.1016/j.jacceco.2004.06.003

Citation Source

  • Scopus