Discretionary Accruals: The Measurement Error Induced By Conservatism
This paper discusses the sign of the expected measurement error in discretionary accruals (DAC) estimates when accrual models do not control for the asymmetric treatment of gains and losses underlying conservatism. I show that DAC in firms with “bad news” are expected to be understated (positive measurement error), while those in “good news” firms will be overstated (negative measurement error). Based on this original result, and using graphical analysis, I discuss an empirical illustration, which corroborates the expectations.
Volume (Year): XI (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: |
Phone: +351-213 925 800
Fax: +351-213 925 850
Web page: http://www.iseg.ulisboa.pt/
More information through EDIRC
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.:
- Thomas, Jacob & Zhang, Xiao-jun, 2000. "Identifying unexpected accruals: a comparison of current approaches," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 347-376.
- 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.
- Ray Ball & Lakshmanan Shivakumar, 2006. "The Role of Accruals in Asymmetrically Timely Gain and Loss Recognition," Journal of Accounting Research, Wiley Blackwell, vol. 44(2), pages 207-242, 05.
- Guay, W. & Kothari, S.P. & Watts, R.L., 1996. "A Market-Based Evaluation of Discretionary-Accrual Models," Papers 96-01, Rochester, Business - Financial Research and Policy Studies.
- Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 1998. "Relative valuation roles of equity book value and net income as a function of financial health," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 1-34, February.
- Steven Young, 1999. "Systematic Measurement Error in the Estimation of Discretionary Accruals: An Evaluation of Alternative Modelling Procedures," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(7&8), pages 833-862.
When requesting a correction, please mention this item's handle: RePEc:pjm:journl:v:xi:y:2006:i:2:p:115-125. 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: (Luís Mota de Castro, Tiago Cardão-Pito, Mark Crathorne)
If references are entirely missing, you can add them using this form.