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File name: SSRN-id521062. ; Size: 352K
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Accrual Reliability, Earnings Persistence and Stock Prices
Scott A. Richardson
London Business School
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
Journal of Accounting & Economics, Vol. 39, No. 3, September 2005
Abstract:
This paper extends the work of Sloan (1996) by linking accrual reliability to earnings persistence. We construct a model showing that less reliable accruals lead to lower earnings persistence. We then develop a comprehensive balance sheet categorization of accruals and rate each category according to the reliability of the underlying accruals. Empirical tests generally confirm that less reliable categories of accruals lead to lower earnings persistence and that investors do not fully anticipate the lower earnings persistence, leading to significant security mispricing. We conclude that there are significant costs associated with the recognition of unreliable information in financial statements.
Number of Pages in PDF File: 65
Keywords: Accruals, reliability, earnings persistence, capital markets, market efficiency
JEL Classification: G12, G14, M41, M43
Accepted Paper Series
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Date posted: March 28, 2004
Suggested CitationRichardson, Scott A., Sloan, Richard G., Soliman, Mark T. and Tuna, A. Irem, Accrual Reliability, Earnings Persistence and Stock Prices. Journal of Accounting & Economics, Vol. 39, No. 3, September 2005. Available at SSRN: http://ssrn.com/abstract=521062
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