Construct Validity in Accruals Quality Research

72 Pages Posted: 11 Feb 2019 Last revised: 11 Aug 2022

See all articles by Alexander Nezlobin

Alexander Nezlobin

London School of Economics & Political Science (LSE) - London School of Economics

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Jenny Zha Giedt

George Washington University - School of Business

Date Written: September 3, 2021

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, construct validity, 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 3, 2021). USC Marshall School of Business Research Paper Sponsored by iORB, No. Forthcoming, Available at SSRN: https://ssrn.com/abstract=3301083 or http://dx.doi.org/10.2139/ssrn.3301083

Alexander Nezlobin

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

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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