Discretionary Accruals Quality, Cost of Capital, and Diversification

47 Pages Posted: 18 Sep 2006 Last revised: 25 Aug 2015

See all articles by Sebahattin Demirkan

Sebahattin Demirkan

University of Maryland

Suresh Radhakrishnan

JSOM, University of Texas at Dallas

Oktay Urcan

University of Illinois at Urbana-Champaign

Date Written: April 4, 2011

Abstract

We examine the discretionary accruals quality of single- and multiple-segment firms. We hypothesize and find that the discretionary accruals quality is lower for multiple-segment firms than single-segment firms; and for the same level of discretionary accruals quality, the cost of capital is higher for multiple-segment firms than single-segment firms. These findings suggest that more severe agency problems in multiple-segment firms compared to single-segment firms may lead to poor discretionary accruals quality and agency risk is priced-in as a higher cost of capital.

Keywords: Cost of Capital, Discretionary Accruals Quality, Diversification Discount, Agency Costs

JEL Classification: D82 G14 G31 M41

Suggested Citation

Demirkan, Sebahattin and Radhakrishnan, Suresh and Urcan, Oktay, Discretionary Accruals Quality, Cost of Capital, and Diversification (April 4, 2011). AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Papers, Journal of Accounting, Auditing and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=817364

Sebahattin Demirkan

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Suresh Radhakrishnan (Contact Author)

JSOM, University of Texas at Dallas ( email )

Mail Stop SM 41
800 West Campbell Road
Richardson, TX 75080
United States
972-883-4438 (Phone)
972-883-6811 (Fax)

Oktay Urcan

University of Illinois at Urbana-Champaign ( email )

515 E. Gregory Drive
4009 BIF MC-520
Champaign, IL 61820
United States
217-265-0383 (Phone)
217-244-0902 (Fax)

HOME PAGE: http://business.illinois.edu/profile/oktay-urcan/

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