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Errors In Estimating Accruals
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Book Synopsis Errors in Estimating Accruals by : Daniel W. Collins
Download or read book Errors in Estimating Accruals written by Daniel W. Collins and published by . This book was released on 1999 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the impact of measuring accruals as the change in successive balance sheet accounts, as opposed to measuring accruals directly from the statement of cash flows. We demonstrate that the balance sheet approach to measuring accruals, which is the dominant method used in the literature to date, introduces significant measurement error into accruals estimates. Results show that the direction and magnitude of the bias in accruals estimates is related to the presence of mergers and acquisitions, discontinued operations, and to a lesser extent, foreign currency translations. Our primary finding is that studies using a balance sheet approach to test for earnings management are potentially contaminated. In particular, if the partitioning variable used to indicate the presence of earnings management is correlated with the occurrence of mergers and acquisitions or discontinued operations, researchers are likely to erroneously conclude that earnings management exists when there is none. Additional results show that the bias in balance sheet accruals estimation can confound regressions where discretionary and non-discretionary accruals are used as explanatory variables. Moreover, we demonstrate that tests of market mispricing of accruals will be understated due to erroneous classification of quot;extremequot; accruals firms.
Book Synopsis The Quality of Accruals and Earnings: The role of Accrual Estimation Errors by : Patricia M. Dechow and Ilia D. Dichev
Download or read book The Quality of Accruals and Earnings: The role of Accrual Estimation Errors written by Patricia M. Dechow and Ilia D. Dichev and published by . This book was released on 2001 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Quality of Accruals and Earnings by : Ilia D. Dichev
Download or read book The Quality of Accruals and Earnings written by Ilia D. Dichev and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper suggests a new measure of one aspect of the quality of accruals and earnings. The major benefit of accruals is to reduce timing and mismatching problems in the underlying cash flows. However, accruals accomplish this benefit at the cost of making assumptions and estimates about future cash flows, which implies that accruals include errors of estimation or noise. Since estimation noise reduces the beneficial role of accruals, this study suggests that the quality of accruals and earnings is decreasing in the magnitude of estimation noise in accruals. More specifically, we develop a simple model of working capital accruals where accruals correct the timing problems in cash flows at the cost of including errors in estimation. Based on the model, we derive an empirical measure of accrual quality as the residual from firm-specific regressions of changes in working capital on past, present, and future operating cash flow realizations. The study concludes with two empirical applications that illustrate the usefulness of our measure of accrual quality. First, we explore the relation of accrual quality to economic fundamentals. We find that accrual quality is negatively related to the magnitude of total accruals, length of the operating cycle, and the standard deviation of sales, cash flows, and earnings, while it is positively related to firm size. Second, we show a strong positive relation between accrual quality and earnings persistence.
Book Synopsis Bias and Measurement Error in Discretionary Accrual Models by : Glen A. Hansen
Download or read book Bias and Measurement Error in Discretionary Accrual Models written by Glen A. Hansen and published by . This book was released on 2000 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines bias and measurement error in discretionary accrual models. This is important because the empirical evidence supporting the conclusions from many earnings management studies is based entirely on estimates from these models. Models of discretionary accruals are actually models of expected and unexpected accruals. Therefore for most earnings management studies, unexpected accruals that arise for reasons other than managerial discretion over financial reporting represent measurement error in discretionary accruals. This study proposes that unexpected accruals will arise from large structural changes such as acquisitions and divestitures. Since most earnings management studies examine managerial discretion over financial reporting these unexpected accruals represent measurement error. I find that structural changes are associated with the direction and magnitude of discretionary accrual estimates. Also, the measurement error associated with these structural changes is correlated with the level of earnings. Since the level of earnings is often used by researchers to partition earnings management incentives (or is correlated with the partitioning variable). This suggests that the empirical results from many earnings management studies are biased.
Book Synopsis The Quality of Accruals and Earnings by : Nicolas Abdo
Download or read book The Quality of Accruals and Earnings written by Nicolas Abdo and published by . This book was released on 2010 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Do Models of Discretionary Accruals Detect Actual Cases of Fraudulent and Restated Earnings? An Empirical Evaluation by : Keith L. Jones
Download or read book Do Models of Discretionary Accruals Detect Actual Cases of Fraudulent and Restated Earnings? An Empirical Evaluation written by Keith L. Jones and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the association between the existence and the magnitude of a fraudulent event that overstated earnings, non-fraudulent restatements of financial statements, and nine competing models of discretionary accruals, accrual estimation errors (Dechow and Dichev 2002 and McNichols 2002), and the Beneish (1997 and 1999) M-score. We use the size of the downward earnings restatement following the discovery of the fraud to proxy for the degree of discretion exercised to perpetrate the fraud. We find that the accrual estimation errors exhibit the strongest association with the existence and the magnitude of fraud and non-fraud restatements. Further, our results suggest that total accruals could be a low-cost alternative to many commonly used measures of discretionary accruals in detecting smaller fraud. The accrual estimation errors have incremental explanatory power over total accruals for both smaller and larger frauds.
Book Synopsis Financial Reporting and Analysis by : Lawrence Revsine
Download or read book Financial Reporting and Analysis written by Lawrence Revsine and published by McGraw-Hill/Irwin. This book was released on 2008-06-30 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Reporting & Analysis (FR&A) by Revsine/Collins/Johnson/Mittelstaedt emphasizes both the process of financial reporting and the analysis of financial statements. This book employs a true "user" perspective by discussing the contracting and decision implications of accounting and this helps readers understand why accounting choices matter and to whom. Revsine, Collins, Johnson, and Mittelstaedt train their readers to be good financial detectives, able to read, use, and interpret the statements and-most importantly understand how and why managers can utilize the flexibility in GAAP to manipulate the numbers for their own purposes.
Book Synopsis Earnings Accruals and Real Activities Management around Initial Public Offerings by : Peter Ising
Download or read book Earnings Accruals and Real Activities Management around Initial Public Offerings written by Peter Ising and published by Springer Science & Business Media. This book was released on 2013-10-06 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt: The beginning of the new millennium was characterized by company scandals in accounting around the world. A transparent and fair presentation of financial statements is beneficial for capital market participants. Especially around initial public offerings different incentives of these players exist to influence financial statements in diverse aspects. Therefore, studies of earnings management try to identify abnormal behavior. Peter Ising covers additional aspects to shed light on substantial drivers of discretionary reporting behavior around going public. Factors like influence on real activities, industry affiliation, and specific years in the IPO process add further insight to this theoretical and practical topic. The dependence on these factors is high and confirms that company specifics are important for interpretation of financial results.
Book Synopsis Staff Papers and Other Materials Reviewed by the President's Commission by :
Download or read book Staff Papers and Other Materials Reviewed by the President's Commission written by and published by . This book was released on 1967 with total page 526 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Handbook of Equity Market Anomalies by : Leonard Zacks
Download or read book The Handbook of Equity Market Anomalies written by Leonard Zacks and published by John Wiley & Sons. This book was released on 2011-10-04 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
Book Synopsis Earnings quality and earnings management by : Sanjay Wikash Bissessur
Download or read book Earnings quality and earnings management written by Sanjay Wikash Bissessur and published by Rozenberg Publishers. This book was released on 2005 with total page 217 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Evidence on the Tradeoff Between Real Manipulation and Accrual Manipulation: to 25; Pages:26 to 50; Pages:51 to 75; Pages:76 to 100; Pages:101 to 120 by : Amy Yunzhi Zang
Download or read book Evidence on the Tradeoff Between Real Manipulation and Accrual Manipulation: to 25; Pages:26 to 50; Pages:51 to 75; Pages:76 to 100; Pages:101 to 120 written by Amy Yunzhi Zang and published by ProQuest. This book was released on 2000 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Oxford Handbook of Strategy Implementation by : Michael A. Hitt
Download or read book The Oxford Handbook of Strategy Implementation written by Michael A. Hitt and published by Oxford University Press. This book was released on 2017 with total page 553 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leading scholars examine the crucial role of implementation influencing how business and managerial strategies produce returns. They focus on governance, resources, human capital, and accounting-based control systems, advancing our understanding of strategy implementation and identifying opportunities for future research on this important process.
Book Synopsis Accruals Quality and Analyst Coverage by : Minsup Song
Download or read book Accruals Quality and Analyst Coverage written by Minsup Song and published by . This book was released on 2020 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the relation between analyst coverage and accruals quality. Because accrual accounting requires managers to estimate the future economic consequences of current events, accruals reflect estimation errors and potential managerial opportunism. This may lower accruals quality and provide noisier signals of firm value. If investors turn to analysts for supplemental information, then demand for analyst services will increase as accruals quality decreases. Because lower accruals quality increases the value of their services, analysts have greater incentives to cover firms with low accruals quality. Our results support these hypotheses. Although firms with low accruals quality have greater analyst coverage and forecast revisions, we also find they have larger forecast errors and dispersion. Thus, analysts are unable to fully resolve the uncertainty in accruals. This is consistent with accruals reflecting information risk.
Book Synopsis The Implications of Accounting Distortions and Growth for Accruals and Profitability by : Scott A. Richardson
Download or read book The Implications of Accounting Distortions and Growth for Accruals and Profitability written by Scott A. Richardson and published by . This book was released on 2005 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Following Sloan (1996), numerous studies show that the accrual component of earnings is less persistent than the cash flow component of earnings. Disagreement exists, however, as to the explanation for this result. Xie (2001) attributes the result to managerial discretion. Fairfield et al. (2003a) argue that it is a special case of a more general growth anomaly that is attributable to the widespread use of conservative accounting methods and/or diminishing marginal returns to new investment. Finally, Dechow and Dichev (2002) and Richardson et al. (2004) argue that it is attributable to transitory accrual estimation error. In this paper, we provide theory and evidence to discriminate between these alternative explanations. Our analysis suggests that transitory accrual estimation error provides the most consistent explanation for the lower persistence of the accrual component of earnings. Further, our results suggest the accrual estimation error is at least partially attributable to managerial discretion.
Book Synopsis Accounting for M&A by : Amir Amel-Zadeh
Download or read book Accounting for M&A written by Amir Amel-Zadeh and published by Routledge. This book was released on 2020-04-29 with total page 331 pages. Available in PDF, EPUB and Kindle. Book excerpt: Spending on M&A has, in aggregate, grown so fast that it has even overtaken capital expenditure on increasing and maintaining physical assets. Yet McKinsey, the leading management consultancy, reports that "Anyone who has researched merger success rates knows that roughly 70% fail". The idea that businesses might be using huge and increasing sums of shareholders’ money for an activity that more often than not leads to failure calls into question the information on which M&A decisions are based. This book presents statistical studies, case material, and standard-setters’ opinions on company accounting before, during, and after M&A. It documents the manipulation of annual accounts by acquirers ahead of share for share bids, biased forecasts of post-merger earnings by bidders, and devices to flatter earnings when recording the deal. It explores the challenges for standard-setters in regulating information flows during and after M&A, and for account-users wishing to learn from financial statements how a deal has affected performance. Drawing on a wide range of international examples, this readable book is targeted not just at accounting specialists but at anyone who is comfortable reading the serious financial press, is intrigued by what is going on in the massive M&A market, and is concerned with achieving better-informed M&A. As such it might be of particular interest to business executives, lawyers, bankers, and investors involved in M&A as well as graduate students interested in researching or learning about the role of accounting in M&A.
Book Synopsis Viewing Discretionary Accruals Through the Univariate Lens by : Albert Mensah
Download or read book Viewing Discretionary Accruals Through the Univariate Lens written by Albert Mensah and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: On a firm-by-firm basis, we apply the univariate conditional heteroscedastic (UCH) mean-variance modeling technique - hereafter called 'UCH Model' - to propose a new way to decoupling a firm's discretionary from non-discretionary accruals. Exploiting the intuition that linear dependence in accruals embodies all plausible accruals determinants, what the UCH Model essentially does is it kills any linear dependence in accruals estimation errors to isolate firm-specific shocks to accruals reporting so that 'model misspecification' and 'low test power' concerns - known to have plagued existing accruals models - are mechanically eliminated. Validation tests reveal that this new discretionary accruals measure appeals to economic theories (i.e. 'smoothing' and other managerial intents) largely popularized in literature. While this measure substantially co-moves with existing measures, we show that the UCH Model outperforms classical models on several grounds aside those captioned above. We therefore encourage accounting researchers to apply this methodology as well in slicing other accounting variables.
