Construct Validity in Accruals Quality Research

61 Pages Posted: 11 Feb 2019 Last revised: 8 Oct 2020

See all articles by Alexander Nezlobin

Alexander Nezlobin

University of California, Berkeley - Haas School of Business

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Jenny Zha Giedt

George Washington University - School of Business

Date Written: September 28, 2020

Abstract

A large body of empirical research in accounting investigates the causes and consequences of accruals quality, reaching numerous influential conclusions. Yet little work has been done to systematically evaluate the validity of the underlying measures of accruals quality. We evaluate these measures using three criteria: (i) Is the measure unaffected by the underlying economic determinants of accruals? (ii) Does the measure consistently reflect errors in accruals? and (iii) Does the measure facilitate tests with sufficient power to detect plausible variation in accrual errors? Using a combination of theoretical modelling and numerical simulations, we show that all measures fail at least one of these criteria. Our evaluation provides new interpretations of existing research and guides the choice of measures and the interpretation of results in future research.

Keywords: accruals, quality, earnings, smoothness, power, specification

JEL Classification: M41, C12

Suggested Citation

Nezlobin, Alexander and Sloan, Richard G. and Zha Giedt, Jenny, Construct Validity in Accruals Quality Research (September 28, 2020). Available at SSRN: https://ssrn.com/abstract=3301083 or http://dx.doi.org/10.2139/ssrn.3301083

Alexander Nezlobin

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Richard G. Sloan

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

Jenny Zha Giedt (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

HOME PAGE: http://www.jennyzha.com

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