Abstract

http://ssrn.com/abstract=1966820
 
 

Citations (2)



 


 



Abnormal Accrual Estimates and Evidence of Mispricing


C.S. Agnes Cheng


Hong Kong Polytechnic University - School of Accounting and Finance; Louisiana State University

Cathy Zishang Liu


affiliation not provided to SSRN

Wayne B. Thomas


University of Oklahoma - Michael F. Price College of Business

December 1, 2011


Abstract:     
To estimate abnormal accruals, prior research employs a wide variety of models and estimation procedures. We evaluate the performance of three representative models – modified Jones model (MJ), MJ with operating cash flows (MJOCF), and MJ with return on assets (MJROA) – and two estimation procedures – industry-specific and firm-specific regressions. In evaluating the performance of various models, we use mispricing tests (i.e. relating current accruals to future returns) as our main test. We find that the best performing model is the firm-specific MJOCF model followed by the industry-specific MJROA model. However, when we use the recursive firm-specific procedure (i.e. based on current and previous years’ information only), we do not find the firm-specific MJOCF model outperforms the industry-specific MJROA model. We recommend that researchers use the industry-specific MJROA model to estimate abnormal accruals when investigating earnings management. For evaluating earnings quality that can include management estimation error, the firm-specific MJOCF remains clearly the best model from the perspective of abnormal accrual mispricing.

Number of Pages in PDF File: 52

Keywords: abnormal accruals, accrual model(s)

JEL Classification: M41, M43

working papers series





Download This Paper

Date posted: December 1, 2011 ; Last revised: December 5, 2011

Suggested Citation

Cheng, C.S. Agnes and Liu, Cathy Zishang and Thomas, Wayne B., Abnormal Accrual Estimates and Evidence of Mispricing (December 1, 2011). Available at SSRN: http://ssrn.com/abstract=1966820 or http://dx.doi.org/10.2139/ssrn.1966820

Contact Information

C.S. Agnes Cheng (Contact Author)
Hong Kong Polytechnic University - School of Accounting and Finance ( email )
Hung Hom, Kowloon
Hong Kong
Louisiana State University ( email )
E.J. Ourso College of Business Administration
2800 Business Education Complex
Baton Rouge, LA 70803
United States
Cathy Zishang Liu
affiliation not provided to SSRN
Wayne B. Thomas
University of Oklahoma - Michael F. Price College of Business ( email )
Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 681
Downloads: 214
Download Rank: 85,194
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.328 seconds