Discretionary Accruals Quality, Cost of Capital, and Diversification
Suffolk University - Sawyer School of Management
University of Texas at Dallas - School of Management
London Business School
April 4, 2011
AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Papers
Journal of Accounting, Auditing and Finance, Forthcoming
We examine the discretionary accruals quality of single- and multiple-segment firms. We hypothesize and find that the discretionary accruals quality is lower for multiple-segment firms than single-segment firms; and for the same level of discretionary accruals quality, the cost of capital is higher for multiple-segment firms than single-segment firms. These findings suggest that more severe agency problems in multiple-segment firms compared to single-segment firms may lead to poor discretionary accruals quality and agency risk is priced-in as a higher cost of capital.
Number of Pages in PDF File: 47
Keywords: Cost of Capital, Discretionary Accruals Quality, Diversification Discount, Agency Costs
JEL Classification: D82 G14 G31 M41Accepted Paper Series
Date posted: September 18, 2006 ; Last revised: April 8, 2011
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