Value Relevance of Discretionary Accruals in the Asian Financial Crisis of 1997-1998

Posted: 15 Dec 2009 Last revised: 15 May 2011

See all articles by Jong-Hag Choi

Jong-Hag Choi

Seoul National University - College of Business Administration

Jeong-Bon Kim

City University of Hong Kong

Jay Junghun Lee

University of Massachusetts Boston

Date Written: April 5, 2010

Abstract

This study investigates whether and how the information values of reported earnings and their components changed around the Asian financial crisis of 1997-1998. Regression analyses on a sample of 10,406 firm-years from nine Asian countries from 1995 to 2000 reveal the following. First, the crisis led to a significant decline in the value relevance of discretionary accruals but had no significant impact on the value relevance of nondiscretionary earnings components such as operating cash flows and nondiscretionary accruals. Second, the decrease in the value relevance of discretionary accruals during the crisis was more severe for firms in countries with weak institutions than for those in countries with strong institutions. Third, the value relevance of discretionary accruals declined to a greater extent for firms with high information asymmetries than for firms with low information asymmetries. Our results are robust to a variety of sensitivity checks.

Keywords: Asian financial crisis, value relevance, discretionary accruals, nondiscretionary accruals, operating cash flows

JEL Classification: F30, G15, M41

Suggested Citation

Choi, Jong and Kim, Jeong-Bon and Lee, Jay Junghun, Value Relevance of Discretionary Accruals in the Asian Financial Crisis of 1997-1998 (April 5, 2010). Journal of Accounting and Public Policy, Vol. 30, No. 2, 2011, Available at SSRN: https://ssrn.com/abstract=1521331

Jong Choi

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Jay Junghun Lee (Contact Author)

University of Massachusetts Boston ( email )

College of Management
100 Morrissey Blvd.
Boston, MA 02125
United States
(617)287-3181 (Phone)

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