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How are discretionary accruals priced? Evidence from the Canadian stock market

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  • Mohamed Chakib Kolsi
  • Osama F. Attayah

Abstract

This paper examines the pricing of discretionary accruals of a sample of 159 Canadian listed firms. According to previous literature, firms' accounting manipulations are explained by the opportunism of managers. As a result, discretionary accruals are negatively priced by an efficient capital market. However, another stream of literature argues that discretionary accruals are positively priced by financial markets as they reduce information asymmetry and capture information not reflected by non-discretionary earnings. As a consequence, discretionary accruals enhance the capacity of reported earnings to reflect firm real performance. The evidence of our study is consistent with the latter scenario. Our findings are robust to alternative models of discretionary accruals, to income increasing vs. income decreasing manipulations, to the level of financial performance and finally to financial market proxies.

Suggested Citation

  • Mohamed Chakib Kolsi & Osama F. Attayah, 2017. "How are discretionary accruals priced? Evidence from the Canadian stock market," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 9(3), pages 283-302.
    • Handle: RePEc:ids:injmfa:v:9:y:2017:i:3:p:283-302
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    Cited by:

    1. Grzybek, Olga, 2023. "Are accounting choices for intangible assets informative or opportunistic? Evidence from Poland," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    2. Matteo Rossi & Gabriella Marcarelli & Antonella Ferraro & Antonio Lucadamo, 2020. "How do Calendar Anomalies Affect an Investment Choice? A Proposal of an Analytic Hierarchy Process Model," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 244-249.

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