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1
Martias, Andi. "ANALISA PENGARUH FREE CASH FLOW, AUDIT INTERNAL, LIKUIDITAS, LEVERAGE DENGAN DISCREATIONARY ACCRUAL Pada PT. ALSY." Jurnal Perspektif 18, no. 1 (March 1, 2020): 45–53. http://dx.doi.org/10.31294/jp.v18i1.7195.
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Abstract - Discreationary accruals as a representative in earnings management calculation parameters. The theory in which calculated by excluding total accruals with non-discreationary accruals. This model uses Total Accrual (TA) which is classified into discreationary accrual (DA) and non discreationary accrual (NDA). This research process aims to determine the process of managing management responsibilities for financial reporting for shareholders there is no miss information. The earnings management method is part of the accounting method used in financial reporting for investors.The analysis used in this study is to see the extent of the influence of free cash flow, internal audit, liquidity ratios, leverage ratio to discreationary accrualrs as representatives of earnings management. Measurement with the ratio approach and the results of the company's internal audit process. The research sample service companies in the field of loss insurance which are listed on the Indonesia stock exchange quarter 1 to quarter 4 during the period 2015 - 2018. Regression panel data is used to test hypotheses. Hypothesis results found no significant correlation between free cash flow, liquidity and leverage with discreationary accruals. Internal audit and free cash flow affect discretionary accruals with a confidence level of 90%, meaning a standard error of 10%. Whereas leverage and liquidity do not have impact with discretionary accruals. This means thus the performance of both there is no correlation to earnings management in the practice of the company under study. Keywords: free cash flow, liquidity ratio, leverage ratio, internal audit, discreationary accruals
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Zhang, X. Frank. "Accruals, Investment, and the Accrual Anomaly." Accounting Review 82, no. 5 (October 1, 2007): 1333–63. http://dx.doi.org/10.2308/accr.2007.82.5.1333.
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This paper investigates two competing hypotheses for the accrual anomaly: investment/growth and persistence. Both investment/growth and persistence information in accruals are likely to vary cross-sectionally, depending on a firm's business model, a fact that generates different cross-sectional implications for the accrual anomaly. I find that the magnitude of the accrual anomaly monotonically increases with the investment information contained in accruals, as measured by the co-variation between accruals and employee growth. In industries/firms in which accruals co-vary with employee growth, accruals show strong predictive power for future stock returns. In industries/firms in which accruals show little correlations with employee growth, the accrual anomaly is much weaker. In contrast, the evidence from the cross-sectional analysis is inconsistent with the persistence argument. From the earnings perspective, the evidence on one-year-ahead earnings growth is inconclusive, but the results on longer-term earnings growth support the investment argument but not the persistence argument. Collectively, I conclude that these results support the view that the accrual anomaly is attributable to the fundamental investment information contained in accruals.
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Hafzalla, Nader, Russell Lundholm, and E. Matthew Van Winkle. "Percent Accruals." Accounting Review 86, no. 1 (January 1, 2011): 209–36. http://dx.doi.org/10.2308/accr.00000011.
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ABSTRACT: We document how the effectiveness of an accruals-based trading strategy changes with the benchmark used to identify an extreme accrual. We measure “percent accruals” as accruals scaled by earnings, rather than total assets, and show that this seemingly small change produces a radically different sort of the data. We find that a trading strategy based on percent accruals yields significantly larger annual hedge returns than the traditional accruals measure, and does so mostly by improving the long position in low-accrual stocks. The hedge returns are also significant in all but the lowest quintile of arbitrage risk. We show that percent accruals more effectively select firms where the difference between sophisticated and nai¨ve forecasts are the most extreme. As such, our results are consistent with the earnings fixation hypothesis and are inconsistent with some alternative explanations for the accrual anomaly.
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Izadi Zadeh Darjezi, Javad. "The role of accrual estimation errors to determine accrual and earnings quality." International Journal of Accounting & Information Management 24, no. 2 (May 3, 2016): 98–115. http://dx.doi.org/10.1108/ijaim-04-2015-0022.
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Purpose Managers, investors and security analysts all pay special attention to the bottom line of income statements and they miss significant information included in accruals about the quality of earnings. A considerable portion of the earnings-quality literature examines the possibility of using the accruals to shift reported income among fiscal periods. One of the main roles of working-capital accruals is to adjust the recognition of cash flows. This paper aims to focus on earnings quality by examining the working-capital accruals quality using the method of Dechow and Dichev (2002). Design/methodology/approach Following the Dechow and Dichev (2002) model, the result of this paper shows that accrual quality is related to the absolute magnitude of accruals negatively. Also, the standard deviation of accruals, cash flows, sales and earnings is positively related to firm size. The result demonstrates and suggests that these observable firm characteristics can be used as instruments for measuring accrual quality. According to this framework, the author expects that the larger the unsigned abnormal accrual measure, the lower the earnings quality. Therefore, firms with low accrual quality have more accruals that are unrelated to cash flow realisations and so have more noise and less persistence in their earnings. Findings After examining earnings and accrual quality, this paper finds that average UK company behaviour was quite similar to the behaviour found earlier in the USA. This paper’s findings show that greater volatility of sales, cash flow, accruals and earnings results in a lower accrual quality. Without a doubt, some of the analysis in this paper, especially that using different equations to calculate working-capital accruals, leads us to a valuable improvement of the earlier studies. Originality/value In this paper, the author follows the method of Dechow and Dichev (2002) and define accrual quality as the extent to which accruals map into cash-flow insights based on the UK data. To find the quality of working-capital accruals, the author uses the standard deviation of the residuals as accrual quality that resulted from the author’s firm-specific OLS regressions of working-capital accruals based on last, current and one-year-ahead operating cash flow. Unlike prior research, to avoid a restriction to working-capital accruals, we use different equations to cover more items of working-capital accruals.
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Canitz, Felix, Christian Fieberg, Kerstin Lopatta, Thorsten Poddig, and Thomas Walker. "Revisiting the (mis)pricing of the accrual anomaly." Journal of Risk Finance 19, no. 3 (May 21, 2018): 210–24. http://dx.doi.org/10.1108/jrf-12-2016-0154.
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Purpose This paper aims to hunt for the driving force behind the accrual anomaly and revisit the risk versus mispricing debate. Design/methodology/approach In sorts of stock returns on abnormal and normal accruals, the authors find that abnormal accruals are the driving force behind the accrual anomaly. The authors then construct characteristic-balanced portfolios from dependent sorts of stock returns on the abnormal accrual characteristic and a related factor-mimicking portfolio to test whether the accrual anomaly is due to risk or mispricing (Daniel and Titman, 1997; Davis et al., 2000). Findings Similar to Hirshleifer et al. (2012), the authors find that the accrual anomaly is due to mispricing and that the measure of accruals used in Hirshleifer et al.’s study (2012) is a very broad measure of accruals. The authors therefore recommend the use of abnormal accruals in future research. Originality/value The results suggest that there are limits to arbitrage or behavioral biases with regard to the trading of low-accrual firms. Showing that the accrual effect is driven by the level of abnormal accruals, the findings of this study strongly challenge the rational risk explanation proposed by the extant literature.
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Krishnan, Gopal V. "Audit Quality and the Pricing of Discretionary Accruals." AUDITING: A Journal of Practice & Theory 22, no. 1 (March 1, 2003): 109–26. http://dx.doi.org/10.2308/aud.2003.22.1.109.
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Accrual-based earnings is considered superior to cash flows. Accruals allow managers to communicate their private and inside information and thereby improve the ability of earnings to reflect underlying economic value. However, managers could engage in aggressive reporting of accruals that would seriously undermine the informativeness of reported earnings. Since outsiders cannot directly observe earnings, high-accrual firms face greater agency costs relative to low-accrual firms. Auditing plays an important role in mitigating these agency costs by constraining opportunistic management of accruals. This study examines whether there is a linkage between audit quality and pricing of discretionary accruals. The findings indicate that the association between stock returns and discretionary accruals is greater for firms audited by Big 6 auditors than for firms audited by non-Big 6 auditors. Further, discretionary accruals of clients of Big 6 auditors have a greater association with future profitability than discretionary accruals of clients of non-Big 6 auditors.
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Dechow, Patricia M., and Ilia D. Dichev. "The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors." Accounting Review 77, s-1 (March 1, 2002): 35–59. http://dx.doi.org/10.2308/accr.2002.77.s-1.35.
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This paper suggests a new measure of one aspect of the quality of working capital accruals and earnings. One role of accruals is to shift or adjust the recognition of cash flows over time so that the adjusted numbers (earnings) better measure firm performance. However, accruals require assumptions and estimates of future cash flows. We argue that the quality of accruals and earnings is decreasing in the magnitude of estimation error in accruals. We derive an empirical measure of accrual quality as the residuals from firm-specific regressions of changes in working capital on past, present, and future operating cash flows. We document that observable firm characteristics can be used as instruments for accrual quality (e.g., volatility of accruals and volatility of earnings). Finally, we show that our measure of accrual quality is positively related to earnings persistence.
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Ashbaugh-Skaife, Hollis, Daniel W. Collins, William R. Kinney, and Ryan LaFond. "The Effect of SOX Internal Control Deficiencies and Their Remediation on Accrual Quality." Accounting Review 83, no. 1 (January 1, 2008): 217–50. http://dx.doi.org/10.2308/accr.2008.83.1.217.
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This paper investigates the effect of internal control deficiencies and their remediation on accrual quality. We first document that firms reporting internal control deficiencies have lower quality accruals as measured by accrual noise and absolute abnormal accruals relative to firms not reporting internal control problems. Second, we find that firms that report internal control deficiencies have significantly larger positive and larger negative abnormal accruals relative to control firms. This finding suggests internal control weaknesses are more likely to lead to unintentional errors that add noise to accruals than intentional misstatements that bias earnings upward. Third, we document that firms whose auditors confirm remediation of previously reported internal control deficiencies exhibit an increase in accrual quality relative to firms that do not remediate their control problems. Finally, we find firms that receive different internal control audit opinions in successive years exhibit changes in accrual quality consistent with changes in internal control quality. Collectively, our cross-sectional and intertemporal change tests provide strong evidence that the quality of internal control affects the quality of accruals.
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Frankel, Richard M., and Yan Sun. "Predicting Accruals Based on Cash-Flow Properties." Accounting Review 93, no. 5 (January 1, 2018): 165–86. http://dx.doi.org/10.2308/accr-52001.
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ABSTRACT Our goal is to understand the extent to which cash-flow properties explain accruals. Using the Dechow, Kothari, and Watts (1998) model, we derive a negative relation between accruals and cash-flow changes, and show that the strength of the relation is linked to negative serial correlation in cash-flow changes. Dechow et al. (1998) also suggest that the strength of the relation between accruals and revenue changes relates to operating cycle length. Prior accrual models have not incorporated these theoretical relations. We show that incorporating cash-flow changes, serial correlation in cash-flow changes, and operating cycle length increases explanatory power of all accrual models considered (i.e., Jones 1991; Ball and Shivakumar 2006; McNichols 2002; Jeter and Shivakumar 1999). We find that incorporating these variables in accrual models also improves specification and power, aids detection of earnings management in AAER firms, and produces a nondiscretionary accrual estimate that better predicts future cash flows and earnings. These results suggest the importance of considering the economic role of accruals when predicting accruals.
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Sun, Lan. "Accrual mispricing in the era of corporate governance reforms." Asian Review of Accounting 28, no. 3 (May 5, 2020): 373–94. http://dx.doi.org/10.1108/ara-08-2019-0143.
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PurposeThis study is primarily motivated by the increasing concern of the academic, practitioners, regulators and standard setters regarding the quality of earnings and financial reporting. The purpose is to investigate whether the accrual anomaly exists in Australia; whether the occurrence of the accrual anomaly is attributed to the discretionary accruals component stemming from managerial discretion; and the impact of corporate governance reforms on accrual mispricing.Design/methodology/approachThis study employs the Mishkin (1983) rational expectations test to examine whether the earnings expectations embedded in stock prices accurately reflect the differential persistence of earnings components. It also employs the hedge portfolio trading strategy to examine whether taking a long position in firms with low accruals and a short position in firms with high accruals will yield positive abnormal stock returns.FindingsThe results show that investors overestimate the persistence of accruals and underestimate the persistence of cash flows and subsequently, overprice the accruals and underprice the cash flows. The evidence of accrual mispricing is severe for the component of discretionary accruals. Nonetheless, the association between discretionary accruals and abnormal returns are weakened during the corporate governance reforms period.Research limitations/implicationsIt should be cautious to attribute the investors' ability to accurately price accruals and cash flows to the passage of corporate governance reform program. Despite there is control for firm size, book-to-market, PE multiple, growth and leverage, other macro-economic factors such as interest rates, inflation and GDP could potentially have an impact on stock returns.Practical implicationsThe passage of corporate governance reform program has increased the level of financial reporting disclosure and the monitoring of management, which subsequently improved accruals persistence and earnings quality. A direct practical implication is that investors should better understand the information in accruals for future earnings when the corporate disclosure environment is strengthened.Social implicationsThis study provides useful information to regulators, academics and investors interested in market efficiency and accrual mispricing. The results suggest that the reform of corporate governance is associated with more efficient prices. This may be of interest to the regulators who intend to improve earnings quality and financial reporting environment through the regulatory reform.Originality/valueTo test the accrual anomaly in the period of corporate governance reforms is particularly useful to regulators and policy makers. It allows regulators and policy makers to gain insight as whether the change of regulation has been effective – more transparent and timely reporting of financial information are supposed to help the investors to better understand the accruals and thus mitigate the potential for accrual mispricing.
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A. Papanastasopoulos, Georgios, Andreas I. Tsalas, and Dimitrios D. Thomakos. "The accrual anomaly in the Greek stock market." Investment Management and Financial Innovations 13, no. 2 (July 14, 2016): 322–33. http://dx.doi.org/10.21511/imfi.13(2-2).2016.07.
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The authors examine the negative relation of traditional accruals and % accruals with future returns in the Greek stock market. Positive abnormal returns from hedge portfolios on both accrual measures summarize the economic significance of this negative relation. The magnitude of returns obtained from traditional accruals is higher than that obtained from % accruals, contrary to existing evidence from the U.S. capital market. The analysis suggests that the accrual anomaly appears to be present in the Greek stock market: this has macroeconomic implications because firms with low reported accruals may exhibit higher stock returns and at this time, during the ongoing Greek capital market crisis, investors are more likely to gain substantial abnormal returns in the future – if and when the Greek economy returns to positive growth
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Nugroho, Bayu Adi, and Jasman Jasman. "Can Managers Use Accruals Quality for Creating Investment Opportunity Set and Increasing Firm Value?" Binus Business Review 9, no. 3 (November 30, 2018): 235–45. http://dx.doi.org/10.21512/bbr.v9i3.4891.
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There were two main objectives of this research. Firstly, the researchers analyzed the impact of accruals quality and debt on firm value. Secondly, the researchers studied whether managers of a highly leveraged firm could use discretionary accruals for Investment Opportunity Set (IOS). The sample consisted of Indonesian manufacturing firms listed from 2013 to 2016. The researchers utilized Generalized Method of Moments (GMM) method and purposive sampling. The researchers find that accruals quality positively affects firm value. The results also suggestthat there are differences in accruals quality between highly leveraged and unleveraged firms. Furthermore, the results indicate that the more intensive the exploitation of accruals quality is, the greater the positive impact of such activity on firm value will be. Additionally, high-accrual leveraged firms borrow more debt than low-accrual unleveraged firms. Then, unleveraged firms have better accruals quality and cash flow, and highly leveraged firms have more significant accounts receivable and slightly better value of IOS. The findings suggest that managers of highly leveraged firms can use discretionary accruals to increase the value of IOS.
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Beneish, Messod D., and Mark E. Vargus. "Insider Trading, Earnings Quality, and Accrual Mispricing." Accounting Review 77, no. 4 (October 1, 2002): 755–91. http://dx.doi.org/10.2308/accr.2002.77.4.755.
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This paper investigates whether insider trading is informative about earnings quality and the valuation implications of accruals. We show that (1) the one-year-ahead persistence of income-increasing accruals is significantly lower when accompanied by abnormal insider selling and greater when accompanied by abnormal insider buying; (2) the accrual mispricing phenomenon observed in previous work (e.g., Sloan 1996) is due to the mispricing of income-increasing accruals; (3) one-year-ahead hedge returns to trading strategies based on the direction of accruals and insider trading significantly exceed those based on accruals alone; and (4) the lower persistence of income-increasing accruals accompanied by abnormal insider selling appears to be at least partly attributable to opportunistic earnings management. Our evidence suggests that market participants and researchers can use managers' contemporaneous trading in ex ante assessing the likelihood that the firms' accruals are of high or low quality, and in assessing the likelihood of earnings management. Our evidence suggesting that insiders trade on their knowledge of factors associated with accrual persistence is also relevant to policymakers charged with regulating insider trading.
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Owens, Edward L., Joanna Shuang Wu, and Jerold Zimmerman. "Idiosyncratic Shocks to Firm Underlying Economics and Abnormal Accruals." Accounting Review 92, no. 2 (July 1, 2016): 183–219. http://dx.doi.org/10.2308/accr-51523.
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ABSTRACT Economics challenge the specification of discretionary accrual models. Since rent-seeking firms pursue differentiated business strategies, firms in the same industry experience idiosyncratic shocks due to heterogeneous economic fundamentals and hence have different accrual-generating processes. We present evidence that idiosyncratic shocks are widespread, propagate through multiple years of financial statements, and reduce accrual models' goodness of fit. This not only affects abnormal accrual estimates for the firm experiencing shocks, but also affects measurement of abnormal accruals for other firms in the industry. We show that idiosyncratic shocks not only add noise to abnormal accruals, but can also exacerbate bias in both unsigned and signed abnormal accruals. We propose ways to reduce accrual model misspecification. JEL Classifications: G30; M41.
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Linck, James S., Jeffry Netter, and Tao Shu. "Can Managers Use Discretionary Accruals to Ease Financial Constraints? Evidence from Discretionary Accruals Prior to Investment." Accounting Review 88, no. 6 (June 1, 2013): 2117–43. http://dx.doi.org/10.2308/accr-50537.
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ABSTRACT: Despite a large literature on discretionary accruals, how the use of discretionary accruals impacts corporate financial decisions is not well understood. We hypothesize that a financially constrained firm with valuable projects can use discretionary accruals to credibly signal positive prospects, enabling it to raise capital to make the investments. We examine a large panel of firms during 1987 to 2009 and find that financially constrained firms with good investment opportunities have significantly higher discretionary accruals prior to investment compared to their unconstrained counterparts. Constrained high-accrual firms have higher earnings-announcement returns than constrained low-accrual firms, obtain more equity and debt financing, and invest in projects that appear to improve performance. These results provide supporting evidence that the use of discretionary accruals can help constrained firms with valuable projects ease those constraints and increase firm value. Data Availability: Data are available from public sources indicated in the text.
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Mulyono, Kasmawati Erlinda N. G., and Umi Murtini. "PENGARUH PERUBAHAN UNDAI\G-I.JNDAIIG PERPAJAKAN NOMOR 17 TAHUN 2OOO TERHADAP MANAJEMEN LABA." Jurnal Riset Akuntansi dan Keuangan 5, no. 2 (August 1, 2009): 1. http://dx.doi.org/10.21460/jrak.2009.52.154.
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Penelitian ini bertujuan menguji penganth perabahan undang-undang perpajakan nomor 17 tahun 2000 terhadap manajemen laba. Penelitian ini menggunakan 131 perusahaan manufaktur yang listing di Bursa Efek Indonesia (BEI). Periode penelitianadaloh tahun 2000 dan 2001. Yariobel yang digunakan untuk mmdeteksi manajernen laba adalah discretionary accruls. Yariabel dependen yang digunakan adalah totalaccruals. Yariqbel indepmden dalam penelitian ini adalah total aWiva tetap (PPE) dan delta revenue (pendapatan tahun t dila,rangi pendapatan tahun t-1).dilatrangi deltaqccount receivable (piutang tahun t dilatrangi piutang tahun t-l).m Berdasorkan hasil uji Peringkat Bertanda Wilcoxon, diperoleh hasil terdapat perbedaan manajemen labasebelum dan sesudah perubahan undang-undang, sehingga dapat disimpulkan bahwa perubohan undang-undang perpajakan nomor 17 tahun 2000 berpengaruh terhadap.tnanajemen laba. Kata kunci: Manajanen Laba, Total Accrual, Discretionary Accruals, Nondiscretionary Accruals, [tndang-undang Perpajakan No. 17 tahan 2000.
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Raonic, Ivana, and Ali Sahin. "Do analysts understand accruals’ persistence? Evidence revisited." Journal of Applied Accounting Research 21, no. 1 (December 2, 2019): 38–59. http://dx.doi.org/10.1108/jaar-07-2018-0103.
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Purpose The purpose of this paper is to revisit the question of whether analysts anticipate accruals’ predicted reversals (or persistence) of future earnings. Prior evidence documents that analysts who provide information to investors are over optimistic about firms with high working capital (WC) accruals. The authors propose that empirical models using WC accruals alone may be incomplete and hence not entirely appropriate to assess the level of analysts’ understanding of accruals. The authors argue that analysts’ optimism about WC accruals might not be due to their lack of sophistication, but rather driven by incomplete accrual information embedded in forecast accuracy tests. Design/methodology/approach The authors use non-financial US firms for the period between 1976 and 2013. The authors define earnings forecast errors as the analysts’ consensus earnings forecasts minus the actual earnings provided by IBES deflated by share price from CRSP. The authors carry out forecast error regressions on individual accrual components by decomposing total accruals into categories. The authors perform the tests across 12 months starting from the initial analysts’ forecasts, which are generally issued in the first month after the prior period earnings announcement date. The final sample contains 48,142 firm–year observations per month. Findings The empirical tests show no correlation between analysts’ forecast errors and revised total accruals. The findings are robust to different samples, periods, model specifications, decile ranked accruals, high accruals, absolute forecast errors, controlling for cash flows (CF) and high accounting conservatism. The findings imply that if analysts are to achieve more accurate forecasts, they should be considering all rather than some accrual components. The authors interpret this evidence as an indication of analysts’ relative sophistication with respect to accruals. Research limitations/implications The authors recognise that analysts’ correct anticipation of accruals’ persistence does not mean that their earnings forecasts are entirely free of bias. Analysts can make forecast errors for various reasons including strategic biases. For instance, the tests show pessimistic forecast errors with respect to CF, which is in line with similar findings in prior research (Drake and Myers, 2011). Hence, the authors suggest that future research examine this correlation in greater depth as CF components are with the highest level of persistence, and hence should be predicted most accurately. Practical implications The results imply that the argument about analysts’ lack of sophistication with respect to accruals’ persistence is not warranted. The results imply that forecasts appear to contribute to market efficiency. Another implication is that analysts seem to utilise all relevant accrual information in their forecasts, hence traditional accrual definition should be revised in future studies. Key inferences of the paper imply that the growing use of analysts’ reports by institutional investors and money managers in their decision-making processes is justified despite the debate in the prior literature on the role and the reputation of analysts as surrogates of market expectations. Originality/value The research sheds a new light on the question whether sell-side security analysts are able to anticipate the persistence of accruals in future earnings.
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Cheng, C. S. Agnes, and Wayne B. Thomas. "Evidence of the Abnormal Accrual Anomaly Incremental to Operating Cash Flows." Accounting Review 81, no. 5 (October 1, 2006): 1151–67. http://dx.doi.org/10.2308/accr.2006.81.5.1151.
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Recent research provides evidence that the operating cash flows-to-price ratio subsumes accruals in explaining future annual returns. This suggests that the accrual anomaly is part of the overall value-glamour anomaly and does not represent the mispricing of earnings. We extend the literature by using multiple measures of abnormal accruals and separate analyses of future annual returns and future earnings announcement returns. The results reveal that the operating cash flows-to-price ratio does not subsume abnormal accruals in explaining future annual returns or future announcement returns. We also find that the operating cash flows-to-price ratio does not subsume total accruals in explaining future announcement returns. These results are not consistent with accruals being a manifestation of the value-glamour anomaly. Our study contributes to the current debate on the existence and the extent of the (abnormal) accrual anomaly. Moreover, the methodology employed can help researchers in exploring mispricing phenomena.
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Resutek, Robert J. "Intangible Returns, Accruals, and Return Reversal: A Multiperiod Examination of the Accrual Anomaly." Accounting Review 85, no. 4 (July 1, 2010): 1347–74. http://dx.doi.org/10.2308/accr.2010.85.4.1347.
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ABSTRACT: Prior studies employ a two-period empirical model and interpret the negative association between accruals in period one and returns in period two as evidence that investors misprice the information contained in accruals. In contrast to prior studies, I employ a three-period log-linear model decomposed from a firm’s book-to-market ratio and show that investors do not misprice the information contained in accruals. My study shows that in the four-year period prior to accrual recognition, equity prices tend to be driven disproportionately by intangible returns, or returns not explained by accounting measures. Accordingly, the relation between prior period intangible returns and future period returns subsumes the relation between current period accruals and future returns. In addition, I link the accrual anomaly and the value/growth anomaly to a common economic mechanism (intangible returns) and show that a strong negative relation between external financing activities and future returns is not subsumed by the accrual anomaly.
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Barth, Mary E., Donald P. Cram, and Karen K. Nelson. "Accruals and the Prediction of Future Cash Flows." Accounting Review 76, no. 1 (January 1, 2001): 27–58. http://dx.doi.org/10.2308/accr.2001.76.1.27.
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Building on the Dechow et al. (1998) model of the accrual process, this study investigates the role of accruals in predicting future cash flows. The model shows that each accrual component reflects different information relating to future cash flows; aggregate earnings masks this information. As predicted, disaggregating accruals into major components—change in accounts receivable, change in accounts payable, change in inventory, depreciation, amortization, and other accruals—significantly enhances predictive ability. Each accrual component, including depreciation and amortization, is significant with the predicted sign in predicting future cash flows, incremental to current cash flow. The cash flow and accrual components of current earnings have substantially more predictive ability for future cash flows than several lags of aggregate earnings. The inferences are robust to alternative specifications, including controlling for operating cash cycle and industry membership.
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Izadi Zadeh Darjezi, Javad, Homagni Choudhury, and Alireza Nazarian. "Simulation evidence on the properties of alternative measures of working capital accruals." International Journal of Accounting & Information Management 25, no. 4 (October 2, 2017): 378–94. http://dx.doi.org/10.1108/ijaim-12-2016-0114.
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Purpose This paper aims to investigate the specification and power of tests based on the DD and modified DD model through the UK data between years 2000 and 2013, and make comparisons with tests using working capital accruals creating a measure of accruals quality as the standard deviation of the residuals value from firm-specific regressions base on working capital accruals on last, current and one-year-ahead cash flows from operations. Design/methodology/approach This study focuses both on the DD model and modified DD model to find out which of them can more accurately capture total working capital accrual estimation error and accrual quality. According to the DD model, the past, current and future net cash from operating activities as the three years’ operating cash inflows or outflows become omitted and correlated variables. In this study, the authors continue to document residuals from the DD and MDD models to demonstrate properties that are more consistent with behaviours of accruals estimation errors. Therefore, in this study, the authors are looking to compare the results from both the MDD and DD models and find which one of them is more effective in explaining the working capital accruals in the UK. Findings The authors find that adding additional explanatory variables may add additional explanatory power of variables to the DD model and extent to which accruals map into cash flow insights based on the UK data. This study is empirically well fitting with the internal workings of cash flows. As investors fixate only on the accounting earnings, they may fail to reflect fully on information contained within cash flow components and working capital accruals of current and future earnings. Originality/value The authors compare different equation to cover more items of working capital accruals. In addition, after examining earnings and accrual quality, the findings show that the average UK company behaviour was quite similar to the behaviour that was founded earlier for both models in the USA. Furthermore, this study results show that more volatility of sales, cash flow, accruals and earnings make a lower accrual quality. The results demonstrate that both models can capture the power to predict working capital accruals. Moreover, we find that adding additional explanatory variable of employee growth rate adds additional explanatory variables to DD model.
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Gong, Guojin, Laura Yue Li, and Hong Xie. "The Association between Management Earnings Forecast Errors and Accruals." Accounting Review 84, no. 2 (March 1, 2009): 497–530. http://dx.doi.org/10.2308/accr.2009.84.2.497.
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ABSTRACT: 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 exhibit greater optimism (pessimism) when accruals are relatively high (low). Consistent with this hypothesis, we find a positive association between management earnings forecast errors and accruals. This positive association is stronger for firms operating in a more uncertain business environment and for firms in industries exhibiting greater covariation between accruals and growth-related activities. Moreover, this positive association is significant when accruals likely reflect managers' true beliefs about firms' business prospects, but is nonexistent when accruals are likely manipulated to boost managers' trading gains. Supplementary analysis reveals that the presence of management earnings forecasts does not significantly reduce accrual mispricing.
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Sullivan, Michael, and Andrew Jianzhong Zhang. "The Accrual Anomaly and the Announcement Effect of Short Arbitrage." Quarterly Journal of Finance 07, no. 01 (February 21, 2017): 1650017. http://dx.doi.org/10.1142/s2010139216500178.
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We investigate the accrual anomaly by examining the stock market reaction around the release of short interest information for firms with high accruals. We show that arbitrage activity, proxied by short interest, focuses on mispricing of firms with high accruals. In particular, we provide evidence that high accrual firms experience significant negative returns when high short interest levels are announced. In contrast, the announcement effect does not vary by short selling activity for low accrual firms. Our findings are consistent with the view that the accrual anomaly is due to overpricing.
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Baber, William R., Sok-Hyon Kang, and Ying Li. "Modeling Discretionary Accrual Reversal and the Balance Sheet as an Earnings Management Constraint." Accounting Review 86, no. 4 (April 1, 2011): 1189–212. http://dx.doi.org/10.2308/accr-10037.
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ABSTRACT This study presents conceptual and empirical analyses of discretionary accrual reversal in the earnings management context. We specifically focus on the extent that income-increasing (decreasing) discretionary accruals initiated in a prior period reverse to become income-decreasing (increasing) accruals in the current period. The analysis suggests that the extent that such reversals constrain the ability to manage toward earnings objectives depends on both the magnitude of past accrual-based earnings management and the reversal speed of past discretionary accruals. To demonstrate the empirical implications of the analysis, we consider discretionary accrual reversal speed as an additional determinant of the balance sheet constraint on earnings management (Barton and Simko 2002). We show that, conditional on the magnitude of net operating asset overstatement, the probability of achieving quarterly earnings forecasts varies inversely with reversal speed.
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Kim, Young Jun, Jung Hoon Kim, Sewon Kwon, and Su Jeong Lee. "Percent accruals and the accrual anomaly: Korean evidence." Pacific-Basin Finance Journal 35 (November 2015): 340–66. http://dx.doi.org/10.1016/j.pacfin.2015.02.006.
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Doyle, Jeffrey T., Weili Ge, and Sarah McVay. "Accruals Quality and Internal Control over Financial Reporting." Accounting Review 82, no. 5 (October 1, 2007): 1141–70. http://dx.doi.org/10.2308/accr.2007.82.5.1141.
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We examine the relation between accruals quality and internal controls using 705 firms that disclosed at least one material weakness from August 2002 to November 2005 and find that weaknesses are generally associated with poorly estimated accruals that are not realized as cash flows. Further, we find that this relation between weak internal controls and lower accruals quality is driven by weakness disclosures that relate to overall company-level controls, which may be more difficult to “audit around.” We find no such relation for more auditable, account-specific weaknesses. We find similar results using four additional measures of accruals quality: discretionary accruals, average accruals quality, historical accounting restatements, and earnings persistence. Our results are robust to the inclusion of firm characteristics that proxy for difficulty in accrual estimation, known determinants of material weaknesses, and corrections for self-selection bias.
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Barth, Mary E., William H. Beaver, John R. M. Hand, and Wayne R. Landsman. "Accruals, Accounting-Based Valuation Models, and the Prediction of Equity Values." Journal of Accounting, Auditing & Finance 20, no. 4 (October 2005): 311–45. http://dx.doi.org/10.1177/0148558x0502000401.
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This study uses out-of-sample equity value estimates to determine whether earnings disaggregation, imposing linear information valuation model (LIM) structure and separate industry estimation of valuation model parameters aid in predicting contemporaneous equity values. We consider three levels of earnings disaggregation: aggregate earnings, cashflow and total accruals and cash flow and four major components of accruals. For pooled estimations, imposing the LIM structure results in significantly smaller prediction errors; for by-industry estimations, it does not. However, by-industry prediction errors are substantially smaller, suggesting that the by-industry estimations are better specified. Mean squared and absolute prediction errors are smallest when earnings are disaggregated into cash flow and major accrual components; median prediction errors are smallest when earnings are disaggregated into cash flow and total accruals. These findings suggest that (1) if concern is with errors in the tails of the equity value prediction error distribution, then earnings should be disaggregated into cash flow and the major accrual components; otherwise earnings should be disaggregated only into cash flow and total accruals; (2) imposing the LIM structure neither increases nor decreases prediction errors, which supports the efficacy of drawing inferences from valuation equations based on residual income models that do not impose the structure implied by the model; (3) valuation of abnormal earnings, accruals, accrual components, equity book value, and other information varies significantly across industries.
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Francis, Jere R., Edward L. Maydew, and H. Charles Sparks. "The Role of Big 6 Auditors in the Credible Reporting of Accruals." AUDITING: A Journal of Practice & Theory 18, no. 2 (September 1, 1999): 17–34. http://dx.doi.org/10.2308/aud.1999.18.2.17.
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This study investigates if the use of a Big 6 auditor is increasing in the firm's endogenous propensity to generate accruals. High-accrual firms have greater scope for aggressive and/or opportunistic earnings management and therefore have an incentive to hire a Big 6 auditor to provide assurance that reported earnings are credible. For a large sample of NASDAQ firms over the period 1975–1994 we find that the likelihood of using a Big 6 auditor is increasing in firms' endogenous propensity for accruals. Even though Big-6-audited firms have higher levels of total accruals, we also find they have lower amounts of estimated discretionary accruals. This finding is consistent with Big 6 auditors constraining aggressive and potentially opportunistic reporting of accruals.
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Fairfield, Patricia M., J. Scott Whisenant, and Teri Lombardi Yohn. "Accrued Earnings and Growth: Implications for Future Profitability and Market Mispricing." Accounting Review 78, no. 1 (January 1, 2003): 353–71. http://dx.doi.org/10.2308/accr.2003.78.1.353.
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Prior research reveals that the accrual component of profitability is less persistent than the cash flow component, and that investors fail to fully appreciate their differing implications for future profitability (Sloan 1996). However, accruals are a component of growth in net operating assets as well as a component of profitability. Just as we can disaggregate profitability into accruals and cash flows from operations, we can disaggregate growth in net operating assets into accruals and growth in long-term net operating assets. We find that, after controlling for current profitability, both components of growth in net operating assets—accruals and growth in long-term net operating assets—have equivalent negative associations with one-year-ahead return on assets. This result is consistent with conservative accounting and diminishing marginal returns on investments. We also find that, after controlling for current profitability, the market appears to equivalently overvalue accruals and growth in long-term net operating assets relative to their association with one-year-ahead ROA. Our evidence suggests that the accrual anomaly documented in Sloan (1996) is a special case of what could be viewed as a more general growth anomaly.
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Richardson, Scott A., Richard G. Sloan, Mark T. Soliman, and I˙rem Tuna. "The Implications of Accounting Distortions and Growth for Accruals and Profitability." Accounting Review 81, no. 3 (May 1, 2006): 713–43. http://dx.doi.org/10.2308/accr.2006.81.3.713.
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Following Sloan (1996), numerous studies document that the accrual component of earnings is less persistent than the cash flow component of earnings. Disagreement exists, however, as to the explanation for this result. One stream of literature follows Sloan's lead in arguing that this result is attributable to accounting distortions (Xie 2001; Dechow and Dichev 2002; Richardson et al. 2005). A second stream of literature argues that this result is attributable to a more general growth effect and that growth-related factors such as diminishing returns to new investment explain the lower persistence of accruals (e.g., Fairfield et al. 2003a; Cooper et al. 2005). We provide new evidence indicating that temporary accounting distortions are a significant contributing factor to the lower persistence of the accrual component of earnings. Our evidence indicates that the lower persistence of accruals extends to accruals that are unrelated to sales growth and that extreme accruals are systematically associated with alleged cases of earnings manipulation.
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Lee, Cheol, Jong Eun Lee, and Myung Seok Park. "Do PCAOB Inspections Improve Working Capital Accrual Reliability? Evidence from the PCAOB Annual versus Triennial Inspection Exposure." Accounting Horizons 34, no. 2 (February 12, 2020): 147–66. http://dx.doi.org/10.2308/horizons-17-180.
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SYNOPSIS In this study, we examine whether the ability of working capital (WC) accruals to predict future earnings and cash flows differs between registrants whose auditors are subject to annual Public Company Accounting Oversight Board (PCAOB) inspections and those whose auditors are subject to triennial PCAOB inspections. We find that WC accruals of clients audited by auditors subject to annual PCAOB inspections enhance earnings persistence more and map into future cash flow realizations better than those audited by auditors subject to triennial PCAOB inspections. These findings are stronger for operating asset accruals than for operating liability accruals. Furthermore, after PCAOB inspection reports are released, improvements in WC accrual reliability are more evident for clients audited by annually inspected auditors than for clients audited by triennially inspected auditors. Overall, our findings suggest that more frequent PCAOB inspections help to improve WC accrual reliability. JEL Classifications: M41; M42; M48. Data Availability: The data are publicly available from the sources identified in the paper.
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Sandoval, Alberto, Javier Márquez, and Ignacio Cervera. "The countercyclical long-term operating accrual-based trading strategy in the Stoxx Europe 600 index: The importance of asset and liability components." PLOS ONE 17, no. 5 (May 26, 2022): e0266045. http://dx.doi.org/10.1371/journal.pone.0266045.
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This work uses long-term operating accruals, rather than current, as an accounting measure to identify major anomalies. Past and abundant accounting and financial literature associates anomalies with problems of reliability and assigns lower reliability to long-term operating accruals than to current accruals. We investigate the relation between scaled operating accruals and size-adjusted abnormal returns for nonfinancial firms listed in the Stoxx Europe 600 index for the period 2000–2021. We find consistent evidence of (1) a higher long-term operating accrual anomaly than working capital accrual, especially, when asset and liability components are separated (2) long-short trading strategies aimed at taking advantage of the anomaly that achieves significant annual returns between 2% and 6% and (3) this trading strategy strongly reduces the risk of stock portfolios during an economic crisis due to its countercyclical nature. These findings have important implications not only for academics, but also for asset managers who want to protect the return of their stock portfolios from high market volatility.
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Barua, Abhijit, Lewis F. Davidson, Dasaratha V. Rama, and Sheela Thiruvadi. "CFO Gender and Accruals Quality." Accounting Horizons 24, no. 1 (March 1, 2010): 25–39. http://dx.doi.org/10.2308/acch.2010.24.1.25.
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SYNOPSIS: The authors examine the association between chief financial officer (hereafter, CFO) gender and the quality of accruals. Based on findings in prior research on gender differences in a variety of decision settings—risk-taking attitudes, financial judgments, and regulatory compliances—they hypothesize that firms with female CFOs will have higher quality of accruals. The empirical findings, based on a sample of 1,559 (1,222) firms in 2005 (2004), support this hypothesis. The study shows that companies with female CFOs have lower performance-matched absolute discretionary accruals and lower absolute accrual estimation errors, after controlling for other factors that prior research has shown to be associated with accruals.
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Jaggi, Bikki, and Picheng Lee. "Earnings Management Response to Debt Covenant Violations and Debt Restructuring." Journal of Accounting, Auditing & Finance 17, no. 4 (October 2002): 295–324. http://dx.doi.org/10.1177/0148558x0201700402.
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The study investigates whether the choice of income-increasing or income-decreasing discretionary accruals is related to the severity of financial distress and whether this choice is also influenced by the creditors' waivers of debt covenant violations. Financially distressed firms experiencing debt covenant violations and/or debt restructuring during the 1989–96 period are used to evaluate the management's choice of discretionary accruals. Discretionary accruals are calculated based on four different accrual models. The results show that managers of financial distressed firms use income-increasing discretionary accruals if they are able to obtain waivers for debt covenant violations, and use income-decreasing discretionary accruals if debt restructuring takes place or debts are renegotiated because waivers are denied. These findings thus provide support to the expectation that the choice of income-increasing or -decreasing discretionary accruals is influenced by the severity of financial distress. They also provide an explanation for divergence in the results of earlier studies on the use of income-increasing or -decreasing discretionary accruals by financially distressed firms.
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Shi, Linna, and Huai Zhang. "On Alternative Measures of Accruals." Accounting Horizons 25, no. 4 (December 1, 2011): 811–36. http://dx.doi.org/10.2308/acch-50050.
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SYNOPSIS 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 between the two measures is caused by four items and non-articulations in changes in working capital accounts and depreciation expenses, in addition to non-articulation events as identified by Hribar and Collins (2002). We find that the non-articulation in working capital accounts and depreciation expenses between the cash flow statement and other financial statements is surprisingly prevalent and economically significant, and it can be attributed to special events, errors made by Compustat, firms' inconsistent definitions, and non-standard classifications of assets/liabilities. We show that, after excluding non-articulation events, the accrual strategy returns are higher for accruals computed using balance sheet items than accruals computed using cash flow statement items. Further investigations suggest that the return differentials are mainly due to other funds from operations and the non-articulation in changes in accounts receivable. JEL Classifications: G12; G14; M41. Data Availability: Data used are available from the sources identified in the study.
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Asim, Amna, and Danish Ahmed Siddiqui. "Asymmetrically Timely Loss Recognition and the Accrual Anomaly: Evidence From Pakistan’s Non-financial Sectors." International Journal of Accounting and Financial Reporting 10, no. 3 (August 7, 2020): 1. http://dx.doi.org/10.5296/ijafr.v10i3.17203.
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An important role of Conditional conservatism is to align the timely expense recognition of revenue generated in terms of losses compared to the profit over negative components of accruals. Accrual anomaly shows asymmetric differential persistence for accruals and cash flows in years of economic gains rather than losses. The aim of this study to determine the asymmetric timely loss recognition and accrual anomaly of the non-financial firms listed at Pakistan Stock exchange (PSX). Top volume non-financial firms listed at PSX were taken for this study over a period of 2011 to 2018. The direct implication of this research on the pattern of pricing of accrual component of earning exhibits positive relationship of excess returns with accruals and stock returns; whereas negative relationship with earnings, market capitalization and indicator variable of profit firms. Overall, research result is consistent with Konstantinidi et al. (2015), the accrual effect on stock return is existent for earnings generated firms, while not apparent for loss firms. This evidence provides relevant information on the aspects of accrual anomaly and its association with the variables of conditional conservatism on the pricing of accrual during the profit years.
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Reyes, Vincent Edgar, Terry L. Evans, Robert Alan VanderWeele, Christopher Ritchie Marsh, Sajid M. Peracha, Gauri J. Kiefer, Nishant Tageja, et al. "Overcoming clinical trial accrual barriers at UPMC: A successful experience." Journal of Clinical Oncology 38, no. 15_suppl (May 20, 2020): e14152-e14152. http://dx.doi.org/10.1200/jco.2020.38.15_suppl.e14152.
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e14152 Background: UPMC Hillman Cancer Center Medical Oncology Network is one of the largest integrated community oncology network in the United States. A large gap exists between trial participation rates and the willingness of patients and physicians. There are numerous barriers to clinical trial accrual in the medical oncology community. UPMC identified and created solutions to overcome barriers, and thus dramatically increase clinical trial accrual in 2019. Methods: A physician led advisory board was created to identity problems and find solutions to increase clinical trial accrual in the community. Processes that were implemented in the community to increase physician engagement included identifying more community friendly clinical trials, highlighting high impact clinical trials, and reprioritizing available clinical trials. Also, community physician champions were selected and directly linked with the academic faculty by disease site at UPMC Hillman Cancer Center. Other marketing tools were utilized like a newly developed mobile clinical trial app, community physician dedicated clinical trial retreat, and clinical trial newsletter. High volume community sites were identified as flagship clinical trial accrual centers. Results: With the implementation of physician led initiatives, total (interventional + non interventional) clinical trial accrual increased in the UPMC medical oncology network from 216 in 2018 to 660 in 2019. In 2019 there were 631 interventional trial accruals and 363 therapeutic trial accruals. In 2018 there were only 186 interventional trial accruals and 46 therapeutic trial accruals. Conclusions: The community oncology-directed initiatives created a culture change among the community physicians. UPMC implemented new processes in the medical oncology network that significantly increased clinical trial accrual. [Table: see text]
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Cheng, S., M. Dietrich, S. Finnigan, A. Sandler, J. Crites, L. Ferranti, A. Wu, and D. Dilts. "A sense of urgency: Evaluating the link between clinical trial development time and the accrual performance of CTEP-sponsored studies." Journal of Clinical Oncology 27, no. 18_suppl (June 20, 2009): CRA6509. http://dx.doi.org/10.1200/jco.2009.27.18_suppl.cra6509.
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CRA6509 Background: Post-activation barriers to oncology clinical trial accruals are well documented; however, potential barriers prior to trial opening are not. We investigate one such barrier: trial development time. Methods: National Cancer Institute Cancer Therapy Evaluation Program (NCI-CTEP) sponsored trials for all therapeutic, non-pediatric phase I,I/II, II, and III studies activated in an eight year period (2000–2007) were investigated (n=553). Successful trials were those achieving 100% of minimum accrual goal. Time to open a study was the calendar time from initial CTEP submission to trialactivation. Multivariable logistic regression analysis was used tocalculate unadjusted and adjusted odds ratios, controlling for study phase and size of expected accruals. Results: 40.0 percent (n=221) of CTEP-approved oncology trials failed to achieve minimum accrual goals, with 49.2 percent (n=30) of phase III trials failing to achieve at least 25 percent of accrual goals. A total of 8,723 patients (17.0% of accruals) accrued to those studies that were unable to achieve the projected minimum accrual goal. Trials requiring 9–12 months development were significantly more likely to achieve accrual goals (odds ratio, 1.94; 95% CI, 1.06 to 3.52, P=0.031) than trials requiring the median time (15–18 months); trials that exceeded 27 months of development time were significantly less likely of achieving accrual goals (odds ratio, 0.14; 95% CI, 0.04 to 0.54, P=0.004). Conclusions: A large percentage of oncology clinical trials do not achieve minimum projected accruals. Trial development time appears to be one important predictor of the likelihood of successfully achieving the minimum accrual goals. [Table: see text] No significant financial relationships to disclose.
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Shamsul Nahar Abdullah. "Earnings Management in Small Listed Firms in Malaysia Using Quantile Regression." International Journal of Business and Society 23, no. 1 (March 31, 2022): 326–41. http://dx.doi.org/10.33736/ijbs.4615.2022.
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This study examines the role of board independence and audit committee expertise in accounting on earnings management in small listed firms in Malaysia, which have been neglected in corporate governance research. Due to their small size, the listing requirements imposed on them by Bursa Malaysia are less stringent. Hence, these firms are predicted to have a higher tendency to manage earnings compared to large listed firms. All firms listed on the Bursa Malaysia ACE Market during the financial years 2012 to 2014 inclusive were selected. The data were analysed using quantile regression to enable the determination of the effects of the corporate governance variables across the quantiles in the conditional distribution of discretionary accruals. The results show that small listed firms have a very high propensity for accrual management compared to large listed firms. The study also reveals that board independence is not associated with either the incidence of accrual management or the direction of discretionary accruals. It also shows that audit committee expertise can mitigate the propensity for discretionary accruals and if discretionary accruals are present, the objective was to reduce the firm’s earnings. However, this evidence only holds in firms where the utilization of discretionary accruals is pervasive.
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Kim, Daniel J., Dan Otap, Nora Ruel, Naveen Gupta, Naveed Khan, and Tanya Dorff. "NCI–Clinical Trial Accrual in a Community Network Affiliated with a Designated Cancer Center." Journal of Clinical Medicine 9, no. 6 (June 24, 2020): 1970. http://dx.doi.org/10.3390/jcm9061970.
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Most cancer care is delivered in the community, while most clinical trials exist in academic centers. We analyzed clinical trial accrual of a tertiary care cancer center and its affiliated community sites to better understand what types of trials accrued at the community sites and whether community accrual increased ethnic diversity. The institutional clinical trial database was searched for solid tumor accruals during 2018–2019. Patient’s race was abstracted, and trial’s funding source, phase, and disease type/stage were tabulated. Of 3689 accruals, 133 were at community sites, representing 26 unique trials while the main campus accrued to 93 unique trials. Community site accruals were highest for breast and colorectal cancer, but patients with less common cancers such as renal, nasopharyngeal, and gastric cancer were also accrued at community sites. Accruals occurred to randomized trials, as well as phase Ib and translational biomarker studies. Minority patients constituted 20.0% and 32.5% of community site accruals for therapeutic and non-therapeutic trials respectively, compared to 20.6% and 29.8% of main campus accruals for therapeutic and non-therapeutic trials, respectively. We conclude that community sites affiliated with an academic cancer center can accrue to a broad spectrum of clinical trials while enhancing racial diversity in participation of clinical trials. Further expansion of access to clinical trials in community sites is necessary to broaden patient access to state-of-the-art and next-generation treatment options.
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Choi, Won-Wook, and Hyun-Ah Lee. "Management Of Accrual Components In Response To Corporate Income Tax Rate Changes: Evidence From Korea." Journal of Applied Business Research (JABR) 29, no. 5 (August 28, 2013): 1421. http://dx.doi.org/10.19030/jabr.v29i5.8024.
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Changes in the statutory corporate income tax rate provide firms with an opportunity to reduce their tax burden by shifting their taxable income from higher to lower tax rate years. One negative consequence of shifting taxable income across years is higher variation in book income for financial reporting purposes. Taxable income and book income are closely related in most countries, and, in general, reporting volatile book income across years is not a favorable signal to investors. This study investigates how firms shift taxable income and concurrently mitigate book income fluctuation by managing accrual components separately when the statutory income tax rate changes. Unlike prior studies, we decompose discretionary accruals into two components and examine distinctive patterns of accrual management in Korea, where book-tax conformity is high and aggressive tax avoidance is restricted. We find that firms manage book-tax accruals for taxable income shifting and manage book-only accruals to mitigate book income fluctuation. Furthermore, we find the extent of book-tax and book-only accruals management varies depending on the firms tax and financial reporting costs. The results of this study provide clear and compelling evidence of firms opportunistic accrual management behavior in response to statutory tax rate reduction.
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Aryannejad, Nasim, Mohammadhossein Ghaemi, and Keyhan Maham. "The role of earnings management in the relationship between accruals and market value." Investment Management and Financial Innovations 15, no. 1 (March 12, 2018): 236–44. http://dx.doi.org/10.21511/imfi.15(1).2018.20.
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The paper aims to clarify the role of earnings management in the relationship between accruals and the market value of companies. Previous studies suggest that some managers, for providing a desirable image of their performance, manage their profits through distorting cash or accruals. Consequently, investors rely on this information and estimate inaccurate stability of accruals which lead to mispricing phenomenon. Finally, the returns earned by the investors will not be equal to the expected return and thus the accrual anomaly will be created.To this aim, two hypotheses were developed and three regression models were applied to analyze the data. To analyze and estimate the models employed, the financial information of 110 companies listed on the stock exchange between years 2008 to 2014 is used. A selective approach to test the hypotheses is studying cross-sectional data.After conducting statistical tests, the results showed that discretionary accruals through which earnings management is done are improperly valued by the market, but the issue is not applicable regarding the non-discretionary accruals. Based on the close relationship between earnings management and discretionary accruals it can be found that earnings management can have an effect on the relationship between accruals and market value.
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Meihami, Bahram, Zeinab Varmaghani, and Hussein Meihami. "An Investigation on the Earnings Quality in Companies (Evidence from Iran)." International Letters of Social and Humanistic Sciences 11 (September 2013): 91–99. http://dx.doi.org/10.18052/www.scipress.com/ilshs.11.91.
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A considerable focus of bottom-line income losses is important in the case of investigating quality of earnings. The future of stock returns is all associated with accruements that are in relation with reliability, and negativity. Earning increases that are accompanied by high accruals, suggesting inferiority of earnings, are related with poor future returns. This study describes the investigation of different hypotheses earnings manipulation, extrapolative fundaments about future growth, and under reaction to changes in business conditions to explain accruals’ predictive power. Differentiations between the hypotheses are grounds on operating performance, the behavior of individual accrual items, discretionary versus fixed investment trust components of accruals, and special items. In the main hypothesis we tested stock return and Earning Quality separately. In this investigation firms in according to a mount of accruals. Later on the validity using within-industry comparisons, and data on Tehran stocks was checked. This means that earnings management occurs with a time lag by market participants. In this research it was indicated that components of accruals including changes in accounts receivable, inventory, other current assets, current liabilities and other current liabilities have not significant effect on stock return. It was also indicated that for discretionary accruals, decreasing of stock return is greater than the decreasing of stock return for non-discretionary accruals.
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Hewitt, Max. "Improving Investors' Forecast Accuracy when Operating Cash Flows and Accruals Are Differentially Persistent." Accounting Review 84, no. 6 (November 1, 2009): 1913–31. http://dx.doi.org/10.2308/accr.2009.84.6.1913.
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ABSTRACT: This study uses an experiment to examine (1) what factors give rise to investors' inability to fully incorporate operating cash flows and accruals into their earnings forecasts, and (2) what conditions help to improve investors' forecast accuracy when operating cash flows and accruals exhibit differential persistence. I investigate how decomposing the forecasting task and altering the presentation format combine to enable analysts and nonprofessional investors to acquire and accurately process financial statement information when operating cash flows and accruals are differentially persistent. I find that the earnings forecasts of analysts and M.B.A. students are more accurate only when participants are required to provide separate forecasts for operating cash flows and accruals and the income statement is altered to present the disaggregated cash and accrual components of earnings.
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Vichitsarawong, Thanyaluk, and Li Li Eng. "Financial Crisis and Earnings Management Under U.S. GAAP and IFRS." Review of Pacific Basin Financial Markets and Policies 23, no. 02 (June 2020): 2050015. http://dx.doi.org/10.1142/s0219091520500150.
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This paper examines the effects of the global financial crisis of 2008 on real and accrual-based earnings management activities of foreign companies listed in the United States as American Depositary Receipts (ADRs). The ADR firms are classified according to whether they report under U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Accrual-based earnings management is measured using the absolute value of performance-matched discretionary accruals. We also use the positive and negative values of performance-matched discretionary accruals to examine income-increasing and income-decreasing earnings management, respectively. Real earnings management proxies are measured using performance-matched measures of the abnormal levels of cash flow from operations, production costs, and discretionary expenses. In summary, our findings indicate no difference in accrual-based earnings management for ADRs reporting under IFRS and U.S. GAAP but suggest that ADRs reporting under IFRS are more likely to manage earnings using income-decreasing discretionary accruals and aggregate real earnings management than ADRs reporting under U.S. GAAP during the financial crisis.
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Apridasari, Esty. "Analisis Manajemen Laba Perbankan Konvensional dan Perbankan Syariah di Bursa Efek Indonesia." AKTSAR: Jurnal Akuntansi Syariah 3, no. 1 (June 8, 2020): 93. http://dx.doi.org/10.21043/aktsar.v3i1.7116.
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<p class="bdabstract">Earnings management in financial statements can be caused by accrual accounting policies applied and conflicts of interest in agency theory. This study aims to analyze and compare earnings management in financial statements of conventional banks and Islamic banks. This research is a descriptive study of banks listed on the Indonesia Stock Exchange in 2017-2018. Earnings management is measured by accrual earnings management proxied by discretionary accruals using the modified-Jones model. The samples are 10 Islamic banks and 32 conventional banks. The results show that the comparison of the average absolute value of discretionary accruals for conventional banks is 0.0659 and for Islamic banks is 0.0478. It shows that discretionary accruals for Islamic banks are generally smaller compared to conventional banks. This indicates that the level of earnings management in Islamic bank financial statements is lower than conventional banks.</p>
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Ali, Ashiq, and Umit G. Gurun. "Investor Sentiment, Accruals Anomaly, and Accruals Management." Journal of Accounting, Auditing & Finance 24, no. 3 (July 2009): 415–31. http://dx.doi.org/10.1177/0148558x0902400305.
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BEVERIDGE, CHRISTOPHER, and MARK JOSHI. "THE EFFICIENT COMPUTATION OF PRICES AND GREEKS FOR CALLABLE RANGE ACCRUALS USING THE DISPLACED-DIFFUSION LMM." International Journal of Theoretical and Applied Finance 17, no. 01 (February 2014): 1450001. http://dx.doi.org/10.1142/s0219024914500010.
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We study the simulation of range accrual coupons when valuing callable range accruals in the displaced-diffusion LIBOR market model (DDLMM). We introduce a number of new improvements that lead to significant efficiency improvements, and explain how to apply the adjoint-improved pathwise method to calculate deltas and vegas under the new improvements, which was not previously possible for callable range accruals. One new improvement is based on using a Brownian-bridge-type approach for simulating the range accrual coupons. We consider a variety of examples, including when the reference rate is a LIBOR rate, when it is a spread between swap rates, and when the multiplier for the range accrual coupon is stochastic.
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Lee, Jong Eun. "Audit Quality And Accrual Reliability: Evidence From The Korean Stock Market." Journal of Applied Business Research (JABR) 32, no. 3 (May 2, 2016): 777–90. http://dx.doi.org/10.19030/jabr.v32i3.9656.
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This study empirically investigates whether a high-quality audit improves the reliability of the components of total accruals using earnings persistence and cash flow predictability. I find that, for firms audited by Big Four auditors, their current or noncurrent assets-related accruals, which are less reliable (“more subjective in measurement”), lead to higher earnings persistence and future cash flow predictability than those of firms audited by non-Big Four auditors. These results suggest that high-quality auditors more effectively evaluate the reasonableness of accrual measurement based on more sufficient and appropriate audit evidence, leading to enhanced accrual reliability.
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Piosik, Andrzej. "Ownership structure of a company and accounting earnings management." Zeszyty Teoretyczne Rachunkowości 2019, no. 103 (159) (September 8, 2019): 135–50. http://dx.doi.org/10.5604/01.3001.0013.3079.
Full textAbstract:
The objective of our study is to investigate whether the ownership structure of a company, including ownership concentration, managerial ownership and the presence of institutional investors, affects accrual earnings management practices. We first modelled discretionary accruals using the modified approach of Jones (1991), and then we built the model describing the relationship between discretionary accruals and elements of ownership structure of companies and control variables, determining regression using the least square method. We provided evidence of negative dependence between the magnitude of accrual earnings management and shareholder concentration. We do not corroborate the relationship between accrual earnings management and managerial ownership. The presence of institutional investors reduces the magnitude of accrual earnings management. We do not provide evidence that the presence of State Treasury affects accrual earnings management. We do not confirm that accrual earnings management is used for meeting or beating earnings benchmarks.