Explaining accruals quality over time

41 Pages Posted: 6 Dec 2019 Last revised: 23 Dec 2022

See all articles by Theodore E. Christensen

Theodore E. Christensen

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

Jenna D'Adduzio

University of British Columbia - Sauder School of Business

Karen K. Nelson

Texas Christian University - Department of Accounting

Date Written: September 17, 2022

Abstract

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

Christensen, Theodore E. and Christensen, Theodore E. and D'Adduzio, Jenna and Nelson, Karen K., Explaining accruals quality over time (September 17, 2022). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3490758 or http://dx.doi.org/10.2139/ssrn.3490758

Theodore E. Christensen

University of Georgia ( email )

Athens, GA
United States

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

Athens, GA 30602
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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