What Determines the Variability of Accounting Accruals?

Authors: Gu, Zhaoyang¹; Lee, Chi-Wen²; Rosett, Joshua³

Source: Review of Quantitative Finance and Accounting, Volume 24, Number 3, May 2005 , pp. 313-334(22)

Publisher: Springer

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Abstract:

The variability of accounting accruals provides a measure of the normal level of managers’ accounting discretion and has important implications for event studies of earnings management. We examine how this measure is related to the economic factors including both firm characteristics and attributes of the disclosure environment. We show that the variability of accruals is related to firm size, leverage, variability of cash flows, operating cycle, growth, and other factors. Significant industry differences and temporal patterns are also found.

Keywords: variability of accruals; accounting discretion; earnings management

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s11156-005-6869-1

Affiliations: 1: Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, 15213, Email: zygu@andrew.cmu.edu 2: A.B. Freeman School of Business, Tulane University, New Orleans, LA, 70118, Email: Jevons.Lee@Tulane.edu 3: Department of Economics/Accounting, Claremont McKenna College, Claremont, CA, 91711, Email: jrosett@mckenna.edu

Publication date: 2005-05-01