Abstract

http://ssrn.com/abstract=521043
 
 

References (22)



 
 

Citations (37)



 


 



The Implications of Accounting Distortions and Growth for Accruals and Profitability


Scott A. Richardson


London Business School; AQR Capital Management, LLC

Richard G. Sloan


University of California at Berkeley - Haas School of Business

Mark T. Soliman


University of Southern California - Marshall School of Business

A. Irem Tuna


London Business School

March 2004


Abstract:     
Following Sloan (1996), numerous studies show 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. Xie (2001) attributes the result to managerial discretion. Fairfield et al. (2003a) argue that it is a special case of a more general growth anomaly that is attributable to the widespread use of conservative accounting methods and/or diminishing marginal returns to new investment. Finally, Dechow and Dichev (2002) and Richardson et al. (2004) argue that it is attributable to transitory accrual estimation error. In this paper, we provide theory and evidence to discriminate between these alternative explanations. Our analysis suggests that transitory accrual estimation error provides the most consistent explanation for the lower persistence of the accrual component of earnings. Further, our results suggest the accrual estimation error is at least partially attributable to managerial discretion.

Number of Pages in PDF File: 53

Keywords: Accruals, earnings management, conservative accounting, aggressive accounting

JEL Classification: M41, M43, M44

working papers series





Download This Paper

Date posted: March 26, 2004  

Suggested Citation

Richardson, Scott A. and Sloan, Richard G. and Soliman, Mark T. and Tuna, A. Irem, The Implications of Accounting Distortions and Growth for Accruals and Profitability (March 2004). Available at SSRN: http://ssrn.com/abstract=521043 or http://dx.doi.org/10.2139/ssrn.521043

Contact Information

Scott Anthony Richardson
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
AQR Capital Management, LLC ( email )
Greenwich, CT
United States
Richard G. Sloan (Contact Author)
University of California at Berkeley - Haas School of Business ( email )
545 Student Services Building
Berkeley, CA 94720
United States
Mark T. Soliman
University of Southern California - Marshall School of Business ( email )
Los Angeles, CA 90089
United States
Ayse Irem Tuna
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 8,290
Downloads: 2,413
Download Rank: 2,578
References:  22
Citations:  37

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.375 seconds