Accruals, Investment and Errors-in-Variables
AbstractWe formulate well-known discretionary accruals models in an investment setting. Given that accruals basically consist of short-term investment, we introduce, (i) cash-flows, as a proxy for financial constraints and other financial markets imperfections, and (ii) Tobin’s q as a measure of capital return. Accounting data and Tobin’s q being measured with errors, we propose an econometric method based on a modified version of the Hausman artificial regression which features an optimal weighting matrix of higher moments instrumental variable estimators. The empirical results suggest that all the key parameters of the discretionary accruals models studied are biased systematically with measurement errors.
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Bibliographic InfoPaper provided by Département des sciences administratives, UQO in its series RePAd Working Paper Series with number UQO-DSA-wp012010.
Length: 42 pages
Date of creation: 01 Jan 2010
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Discretionary accruals; Earnings management; Investment; Measurement errors; Higher moments; Instrumental variable estimators.;
Find related papers by JEL classification:
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-04-11 (Accounting & Auditing)
- NEP-ALL-2010-04-11 (All new papers)
- NEP-BEC-2010-04-11 (Business Economics)
- NEP-ECM-2010-04-11 (Econometrics)
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