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The Impact of Discretionary Accruals on Corporate Investment Decisions: Evidence from GCC Countries

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  • Goksel Acar
  • Ilker Yilmaz

Abstract

The aim of the article is to examine the relationship between the level of discretionary accruals and corporate investment decisions by using the data of listed production firms from six Gulf Cooperation Council (GCC) countries for the period 2009-2015. We firstly generated discretionary accruals using performance adjusted model introduced by Kothari, et al. (2005). Secondly, we constructed six models to see the relationship between discretionary accruals and investment decisions. To control for country and time effects, we added GDP growth rates of countries as a macroeconomic indicator in all models. Our findings reveal a weak emphasis of discretionary accruals on two dependent variables. Mean accruals are negative for all years and for all countries, and it shows that companies tend to engage in earnings management practices in order to understate income. The use of PPE as an indicator of investment rates for companies provide more precise results than the use of total assets.

Suggested Citation

  • Goksel Acar & Ilker Yilmaz, 2020. "The Impact of Discretionary Accruals on Corporate Investment Decisions: Evidence from GCC Countries," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 9, November.
    • Handle: RePEc:bjz:ajisjr:1977
    DOI: https://doi.org/10.36941/ajis-2020-0124
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    References listed on IDEAS

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    1. Paul Hribar & Daniel W. Collins, 2002. "Errors in Estimating Accruals: Implications for Empirical Research," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 105-134, March.
    2. Feng Li, 2011. "Earnings Quality Based on Corporate Investment Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 49(3), pages 721-752, June.
    3. Richard Lambert & Christian Leuz & Robert E. Verrecchia, 2007. "Accounting Information, Disclosure, and the Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 385-420, May.
    4. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    5. García Lara, Juan Manuel & García Osma, Beatriz & Penalva, Fernando, 2016. "Accounting conservatism and firm investment efficiency," Journal of Accounting and Economics, Elsevier, vol. 61(1), pages 221-238.
    6. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
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