Managerial Ability and Revenue-Expense Matching: Accrual Estimation versus Business Decision

32 Pages Posted: 19 Feb 2020 Last revised: 16 Sep 2020

See all articles by Hyungjin Cho

Hyungjin Cho

Inha University - College of Business Administration

Ga-Young Choi

Seoul National University - Business School

Date Written: September 16, 2020

Abstract

We investigate the association between managerial ability and revenue-expense matching. We find that firms having managers with better ability exhibit better contemporaneous revenue-expense matching because more capable managers estimate accruals more accurately and select the projects with smaller early cash outflows. On the other hand, the relation between current revenue and past expense is weaker for such firms. These findings are attributable to both accrual estimations and project selections, former effect being stronger than the latter. Our study indicates that the relation between managerial ability and earnings attribute could be a function of accrual estimation process as well as project selection

Keywords: managerial ability, revenue-expense matching, accrual estimation, project selection

JEL Classification: G32

Suggested Citation

Cho, Hyungjin and Choi, Ga-Young, Managerial Ability and Revenue-Expense Matching: Accrual Estimation versus Business Decision (September 16, 2020). Available at SSRN: https://ssrn.com/abstract=3520629 or http://dx.doi.org/10.2139/ssrn.3520629

Hyungjin Cho (Contact Author)

Inha University - College of Business Administration ( email )

Incheon
Korea, Republic of (South Korea)

Ga-Young Choi

Seoul National University - Business School ( email )

Seoul
Korea, Republic of (South Korea)

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