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Accruals, Investment and Errors-in-Variables

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Author Info

  • Christian Calmès

    ()
    (Département des sciences administratives, Université du Québec (Outaouais), et Chaire d'information financière et organisationnelle, ESG-UQAM)

  • Denis Cormier

    ()
    (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle, ESG-UQAM)

  • Francois Racicot

    ()
    (Département des sciences administratives, Université du Québec (Outaouais), et Chaire d'information financière et organisationnelle, ESG-UQAM)

  • Raymond Théoret

    ()
    (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle, ESG-UQAM)

Abstract

We 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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File URL: http://www.repad.org/ca/qc/uq/uqo/dsa/accruals201002.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Département des sciences administratives, UQO in its series RePAd Working Paper Series with number UQO-DSA-wp012010.

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Length: 42 pages
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:pqs:wpaper:012010

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Keywords: Discretionary accruals; Earnings management; Investment; Measurement errors; Higher moments; Instrumental variable estimators.;

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