Explaining accruals quality over time: The role of operating volatility

52 Pages Posted: 6 Dec 2019 Last revised: 4 Jun 2021

See all articles by Theodore E. Christensen

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

Jenna D'Adduzio

University of British Columbia - Sauder School of Business

Karen K. Nelson

Texas Christian University - Department of Accounting

Date Written: May 25, 2021

Abstract

Prior research finds evidence suggesting a long-term trend of declining accruals quality in the U.S. Using the Dechow and Dichev (2002) accruals quality measure, we provide new evidence that this decline began to reverse around 2000, with accruals quality continuing to improve in more recent years. We find that this intertemporal pattern is significantly associated with the firm’s operating cash flow volatility. We corroborate these results in a battery of additional tests which indicate that the pattern of accruals quality cannot be explained by alternative theories regarding changes in the composition of public firms, regulation, or accounting standards. Overall, our evidence suggests that concerns about a decline in earnings and accruals quality are overstated.

Keywords: accruals quality, earnings quality, cash flow volatility

JEL Classification: D84, G14, M41

Suggested Citation

Christensen, Theodore E. and D'Adduzio, Jenna and Nelson, Karen K., Explaining accruals quality over time: The role of operating volatility (May 25, 2021). Available at SSRN: https://ssrn.com/abstract=3490758 or http://dx.doi.org/10.2139/ssrn.3490758

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

Jenna D'Adduzio (Contact Author)

University of British Columbia - Sauder School of Business ( email )

2053 Main Hall
Vancouver, British Columbia V6T 1Z2
Canada

Karen K. Nelson

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7567 (Phone)

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