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Accruals quality and analyst coverage

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  • Lobo, Gerald J.
  • Song, Minsup
  • Stanford, Mary
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    Abstract

    We provide evidence that analyst coverage increases as accruals quality decreases. This finding is consistent with the services of financial analysts becoming more valuable and in greater demand as accruals provide weaker signals about future cash flows. Further, it is accruals quality associated with innate uncertainty in the firm’s operating environment that attracts analysts even after controlling for operating uncertainty associated with cash flow and stock return volatility. This suggests that low quality accruals provide an opportunity for analysts to benefit from generating private information. Consistent with analysts providing compensating information, we find that forecasts for firms with lower accruals quality contain more private information.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 2 ()
    Pages: 497-508

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:2:p:497-508

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Analyst coverage; Accruals quality; Information asymmetry; Private information; Operating uncertainty;

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    References

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    Cited by:
    1. Forough Heirany & Mahmoud Moeinadin & Manije Nazemizadeh, 2014. "The Role of Accrual Decomposition in Increasing the Information Value," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(1), pages 309-318, January.
    2. García-Teruel, Pedro J. & Martínez-Solano, Pedro & Sánchez-Ballesta, Juan Pedro, 2014. "The role of accruals quality in the access to bank debt," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 186-193.

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