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Accruals, Investment and Errors-in-Variables

Author

Listed:
  • Christian Calmès

    () (Département des sciences administratives, Université du Québec (Outaouais), et Chaire d'information financière et organisationnelle, ESG-UQAM)

  • Denis Cormier

    () (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle, ESG-UQAM)

  • Francois Racicot

    () (Département des sciences administratives, Université du Québec (Outaouais), et Chaire d'information financière et organisationnelle, ESG-UQAM)

  • Raymond Théoret

    () (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle, ESG-UQAM)

Abstract

We formulate well-known discretionary accruals models in an investment setting. Given that accruals basically consist of short-term investment, we introduce, (i) cash-flows, as a proxy for financial constraints and other financial markets imperfections, and (ii) Tobin’s q as a measure of capital return. Accounting data and Tobin’s q being measured with errors, we propose an econometric method based on a modified version of the Hausman artificial regression which features an optimal weighting matrix of higher moments instrumental variable estimators. The empirical results suggest that all the key parameters of the discretionary accruals models studied are biased systematically with measurement errors.

Suggested Citation

  • Christian Calmès & Denis Cormier & Francois Racicot & Raymond Théoret, 2010. "Accruals, Investment and Errors-in-Variables," RePAd Working Paper Series UQO-DSA-wp012010, Département des sciences administratives, UQO.
  • Handle: RePEc:pqs:wpaper:012010
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    File URL: http://www.repad.org/ca/qc/uq/uqo/dsa/accruals201002.pdf
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    More about this item

    Keywords

    Discretionary accruals; Earnings management; Investment; Measurement errors; Higher moments; Instrumental variable estimators.;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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