Discretionary Accruals Quality, Cost of Capital, and Diversification
47 Pages Posted: 18 Sep 2006 Last revised: 25 Aug 2015
Date Written: April 4, 2011
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: Suggested Citation