Explaining accruals quality over time
41 Pages Posted: 6 Dec 2019 Last revised: 23 Dec 2022
Date Written: September 17, 2022
We provide evidence that accruals quality in the U.S. is generally improving since 2000, following a decade of decline during the 1990s. Our results indicate that both the initial decline in accruals quality and the subsequent reversal can be explained by an inverse relation with operating cash flow volatility. Further, even though patterns of cash flow volatility and accruals quality vary in different regions of the world and relative to the U.S., we find evidence of an inverse relation between accruals quality and cash flow volatility globally. We corroborate our main results in a battery of additional tests, which also indicate that our results are not attributable to other explanations. Overall, our evidence challenges conventional wisdom and suggests that concerns about a sustained decline in accruals quality over time are unwarranted.
Keywords: accruals quality, cash flow volatility
JEL Classification: M21, M41, M44
Suggested Citation: Suggested Citation