Measuring Accruals Quality: A Theoretical and Empirical Evaluation

54 Pages Posted: 11 Feb 2019 Last revised: 14 Feb 2019

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: February 12, 2019

Abstract

A large body of empirical research in accounting investigates the causes and consequences of accruals quality, reaching a variety of intriguing and influential conclusions. Yet little work has been done to systematically validate the underlying measures of accruals quality. We provide the first comprehensive evaluation of popular measures of accruals quality. We find that these measures are poorly specified, lack power, suffer serious problems with correlated omitted economic characteristics and sometimes have the opposite relation to accruals quality as assumed in existing research. Collectively, our evidence casts considerable doubt on the conclusions of previous research. We close by providing guidelines for conducting improved tests of accruals quality.

Keywords: accruals, earnings quality, earnings persistence, earnings smoothness

JEL Classification: M41

Suggested Citation

Nezlobin, Alexander and Sloan, Richard G. and Zha Giedt, Jenny, Measuring Accruals Quality: A Theoretical and Empirical Evaluation (February 12, 2019). 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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