Accruals and Managerial Operating Decisions Over the Firm Life Cycle

Posted: 20 Sep 2006 Last revised: 26 Mar 2013

Date Written: January 2, 2008

Abstract

This paper explores the notion that the firm's life cycle is an omitted variable in commonly used discretionary accrual models. I first document a mean positive (negative) bias in discretionary accruals for firms in the growth (decline) stage of their life cycle. Second, I re-examine prior studies' tests for income-increasing (decreasing) earnings management around IPOs (asset write-downs), and I show how inferences change after controlling for the firm's stage in its life cycle. Last, I show that incorporating controls for life cycle in accrual models leads to comparable, or lower, type I and type II error rates for random samples of discretionary accruals. Robustness tests indicate that these findings are not driven by earnings management incentives.

Keywords: Accruals, Cash flow, Quality, Growth, Decline, Life cycle, Financing

JEL Classification: G10, M41, M43

Suggested Citation

Liu, Michelle, Accruals and Managerial Operating Decisions Over the Firm Life Cycle (January 2, 2008). Available at SSRN: https://ssrn.com/abstract=931523 or http://dx.doi.org/10.2139/ssrn.931523

Michelle Liu (Contact Author)

CUNY Hunter College ( email )

695 Park Avenue
New York, NY 10065
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
2,342
PlumX Metrics