Francis, Jennifer () (Fuqua School of Business, Duke University) LaFond, Ryan (University of Wisconsin) Olsson, Per (Duke University) Schipper, Katherine (Financial Accounting Standards Board)
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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number
22.
Length: 43 pages Date of creation: 15 Mar 2004 Date of revision: Handle: RePEc:hhs:sifrwp:0022
Contact details of provider: Postal: Institute for Financial Research Drottninggatan 89, SE-113 60 Stockholm, Sweden Phone: +46-8-728-5120 Fax: +46-8-728-5130 Email: Web page: http://www.sifr.org/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Anki Helmer).
Did you know? You can include your works in the database easily by uploading them on the Munich Personal RePEc Archive (MPRA) if you do not have access to an institutional RePEc archive.