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Discussion of “The persistence of earnings and cash flows and the role of special items: Implications for the accrual anomaly”

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  • Patricia M. Fairfield

    (Georgetown University)

Abstract

Dechow and Ge (2006, Review of Accounting Studies, 11) add new descriptive evidence to the literature on earnings behavior and investor reaction to earnings. Specifically, they find that low accrual firms with negative special items have higher returns on assets and higher market returns in future years. Their paper raises interesting questions about conservative accounting and about the effect of special items on the future performance of distressed firms. However, because the authors position their paper as an investigation of the accruals anomaly they don’t explore many of the issues they raise, and so miss an opportunity to make a more substantive contribution to our understanding of the behavior of and reaction to accounting information.

Suggested Citation

  • Patricia M. Fairfield, 2006. "Discussion of “The persistence of earnings and cash flows and the role of special items: Implications for the accrual anomaly”," Review of Accounting Studies, Springer, vol. 11(2), pages 297-303, September.
    • Handle: RePEc:spr:reaccs:v:11:y:2006:i:2:d:10.1007_s11142-006-9005-0
    DOI: 10.1007/s11142-006-9005-0
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    References listed on IDEAS

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    1. 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.
    2. Patricia M. Dechow & Weili Ge, 2006. "The persistence of earnings and cash flows and the role of special items: Implications for the accrual anomaly," Review of Accounting Studies, Springer, vol. 11(2), pages 253-296, September.
    3. Freeman, Rn & Ohlson, Ja & Penman, Sh, 1982. "Book Rate-Of-Return And Prediction Of Earnings Changes - An Empirical-Investigation," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 20(2), pages 639-653.
    4. Doron Nissim & Stephen H. Penman, 2001. "Ratio Analysis and Equity Valuation: From Research to Practice," Review of Accounting Studies, Springer, vol. 6(1), pages 109-154, March.
    5. 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.
    6. Givoly, Dan & Hayn, Carla, 2000. "The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 287-320, June.
    7. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-124, January.
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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