Abnormal Accruals and Firm Value, Panel Data Analysis of Banking Industry of Pakistan

Abstract:     
Value of Bank has been estimated using Tobin's Q formula while total accruals have been measured through income statement approach i.e. difference between net income and net cash flows from operating activities. In this study, Cross Sectional Modified Jones Model [1995] has been used to segregate total accruals into discretionary and non-discretionary components. Using ordinary least square method (OLS), in a sample of 21 commercial banks operating in Pakistan, I document negative relationship between discretionary accruals and firm value and very strong positive relationship between firm value and profitability of bank in a particular year. However, relationship of firm value with total accruals has been found positive but insignificant. These findings are the indicators that commercial banking firms face negative response if they deliberately report less earnings in good times and comparatively higher earnings in bad times.

Number of Pages in PDF File: 13

Keywords: kse, panel data, capital strength

Accepted Paper Series