The Effect of Discretionary Accruals on the Value Relevance of Accounting Information

다국어 초록 (Multilingual Abstract)

This study uses both magnitude and change in discretionary accounting accruals as proxies for earnings quality (earnings management) and investigates that whether managerial discretion over accounting accruals influences the value relevance of accounting information reflected in stock price. The study employs the cross-sectional modified Jones (1991) model for estimating discretionary accruals and uses two valuation models, earnings capitalization and Ohlson’s equity valuation, for investigating value relevance of accounting variable in question.In earnings capitalization model, this study find that earnings have decreased value relevance (hence lowered price-earnings multiple) when change in discretionary accruals is high in earnings capitalization model. In contrast, market, in general, perceives a magnitude of discretionary accruals as a credible signal, supporting a functional fixation hypothesis. The findings in the Ohlson’s valuation model indicate that both earnings and book value of equity haveimpaired value relevance reflected in stock prices when opportunistic earnings management is observable. These results, however, do not support the assumption that for equity valuation the income statement decreases in importance and the balance sheet increases in importance as earnings quality decreases.

목차 (Table of Contents)

• 개요
• Ⅰ. Introduction
• Ⅱ. Research Design
• Ⅲ. Data and Empirical Results
• Ⅳ. Concluding Remarks
• References