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Managerial ability and revenue-expense matching: accrual estimation versus real business decision

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  • Hyungjin Cho
  • Ga-Young Choi

Abstract

We investigate the association between managerial ability and revenue-expense matching. We find that firms having more capable managers exhibit a better contemporaneous revenue-expense matching, partly attributable to their ability at accrual estimation. We also find that the association between current revenue and past expense is weaker for firms having more talented managers due to cash flow effects. These findings are robust to a battery of control variables and to alternative proxies of managerial ability. Our study indicates that the relation between managerial ability and earnings attribute could be a function of accrual estimation process as well as real business decision. JEL codes: G32.

Suggested Citation

  • Hyungjin Cho & Ga-Young Choi, 2023. "Managerial ability and revenue-expense matching: accrual estimation versus real business decision," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 30(4), pages 1120-1135, July.
    • Handle: RePEc:taf:raaexx:v:30:y:2023:i:4:p:1120-1135
    DOI: 10.1080/16081625.2021.1977663
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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