Environmental Uncertainty and Managers' Use of Discretionary Accruals

45 Pages Posted: 29 Jun 2009

See all articles by Dipankar Ghosh

Dipankar Ghosh

University of Oklahoma

Lori Olsen

affiliation not provided to SSRN

Abstract

Although an organization's environmental uncertainty may induce greater variability in reported earnings, managers have incentives to reduce this variability. The flexibility accorded by Generally Accepted Accounting Principles (GAAP) provides managers the means to accomplish this via exercising discretion in recognizing accounting accruals. Thus, we examine the relation between managers' use of discretionary accruals and environmental uncertainty. Overall, evidence suggests managers use discretionary accruals to reduce the variability in reported earnings more when firms operate in high uncertainty.

Keywords: Discretionary Accruals, Environmental Uncertainty, Information Asymmetry, Earnings

JEL Classification: M41, M43, D82, G31

Suggested Citation

Ghosh, Dipankar and Olsen, Lori, Environmental Uncertainty and Managers' Use of Discretionary Accruals. Accounting, Organizations and Society, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1323790

Dipankar Ghosh (Contact Author)

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-5777 (Phone)
405-325-7348 (Fax)

Lori Olsen

affiliation not provided to SSRN ( email )

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