The market pricing of accruals quality

  • Francis J
  • LaFond R
  • Olsson P
 et al. 
  • 644

    Readers

    Mendeley users who have this article in their library.
  • 753

    Citations

    Citations of this article.

Abstract

We investigate whether investors price accruals quality, our proxy for the information risk associated with earnings. Measuring accruals quality (AQ) as the standard deviation of residuals from regressions relating current accruals to cash flows, we find that poorer AQ is associated with larger costs of debt and equity. This result is consistent across several alternative specifications of the AQ metric. We also distinguish between accruals quality driven by economic fundamentals (innate AQ) versus management choices (discretionary AQ). Both components have significant cost of capital effects, but innate AQ effects are significantly larger than discretionary AQ effects. © 2005 Elsevier B.V. All rights reserved.

Author-supplied keywords

  • Accruals quality
  • Capital markets
  • Information risk

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Authors

  • Jennifer Francis

  • Ryan LaFond

  • Per Olsson

  • Katherine Schipper

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free