IDEAS home Printed from
   My bibliography  Save this article

Discretionary Accruals: The Measurement Error Induced By Conservatism


  • José A. C. Moreira

    () (Faculdade de Economia da Universidade do Porto. CETE - Centro de Estudos de Economia Industrial, do Trabalho e da Empresa)


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.

Suggested Citation

  • José A. C. Moreira, 2006. "Discretionary Accruals: The Measurement Error Induced By Conservatism," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(2), pages 115-125.
  • Handle: RePEc:pjm:journl:v:xi:y:2006:i:2:p:115-125

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. repec:bla:joares:v:29:y:1991:i:2:p:193-228 is not listed on IDEAS
    2. repec:bla:joares:v:34:y:1996:i::p:107-115 is not listed on IDEAS
    3. 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.
    4. 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.
    5. repec:bla:joares:v:37:y:1999:i::p:53-87 is not listed on IDEAS
    6. 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.
    7. 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, May.
    8. 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.
    9. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item


    accruals; accrual models; earnings management;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.