Components of Accruals, Losses and Future Profitability
Recent research examines the implications of components of accruals for future profitability. Because the persistence of earnings varies with the level of company profitability, we expect differences between profitable and loss-making companies in the association between components of accruals and future profitability. Using the approach adopted by Richardson, Sloan, Soliman and Tuna (2006) we find evidence suggesting that the components of accruals related to revenue growth and to change in asset turnover are less persistent than the cash flow component of earnings for profitable Australian companies. For loss-making companies, however, the persistence of the accrual component of earnings is found to be higher than for the cash flow component of earnings, suggesting that the accrual component is more informative than the cash flow component in explaining period ahead profitability for many currently unprofitable companies.
If you experience problems downloading a file, check if you have the proper application to view it first. 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 20 (2007)
Issue (Month): 2 (September)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=arj Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richardson, Scott A. & Sloan, Richard G. & Soliman, Mark T. & Tuna, Irem, 2005. "Accrual reliability, earnings persistence and stock prices," Journal of Accounting and Economics, Elsevier, vol. 39(3), pages 437-485, September.
- Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
- Jeff Coulton & Sarah Taylor & Stephen Taylor, 2005. "Is 'benchmark beating' by Australian firms evidence of earnings management?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(4), pages 553-576.
- Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
- Peter Wells, 2002. "Earnings management surrounding CEO changes," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(2), pages 169-193.
- Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
- Jayne Godfrey & Paul Mather & Alan Ramsay, 2003. "Earnings and Impression Management in Financial Reports: The Case of CEO Changes," Abacus, Accounting Foundation, University of Sydney, vol. 39(1), pages 95-123.
- Paul Hribar, 2002. "Errors in Estimating Accruals: Implications for Empirical Research," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 105-134, 03.
- Ryan Davidson & Jenny Goodwin-Stewart & Pamela Kent, 2005. "Internal governance structures and earnings management," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(2), pages 241-267.
- Konan Chan & Louis K. C. Chan & Narasimhan Jegadeesh & Josef Lakonishok, 2006. "Earnings Quality and Stock Returns," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1041-1082, May.
When requesting a correction, please mention this item's handle: RePEc:eme:arjpps:v:20:y:2007:i:2:p:96-110. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.