Title: A Market-Based Evaluation of Discretionary-Accrual Models
Abstract:GAAP provides management with discretion over accounting accruals. Management might use the discretion to improve earnings as a measure of firm performance, or engage in opportunistic management of di...GAAP provides management with discretion over accounting accruals. Management might use the discretion to improve earnings as a measure of firm performance, or engage in opportunistic management of discretionary accruals. Empirical research on accrual management requires a model to identify discretionary accruals. We assess the effectiveness of alternative discretionary-accrual models using expected relations between stock returns and earnings components under the performance-measure and opportunistic-management-of-accruals hypotheses. None of the five models examined in the paper is effective in isolating discretionary accruals. We find that the discretionary-accrual models randomly decompose earnings into discretionary and nondiscretionary components.Read More
Publication Year: 1996
Publication Date: 1996-01-01
Language: en
Type: article
Access and Citation
Cited By Count: 86
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