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The Deteriorating Mapping of Accruals into Cash Flows over the Last Four Decades:Are accruals becoming less reliable?
Ting Luo,
University of Wisconsin - Madison
ABSTRACT. This study investigates whether the declining mapping of accruals into cash flows occurring within one year implies an over-time trend of less reliable accruals estimation. I document that this temporal change is not only related to unreliable accruals, but also driven by increasing recognition lead/lag in accounting. Investors appear to negatively price accruals mapping determined by reliability, but not accruals mapping determined by recognition lead/lag. This investigation provides insights on the temporal change of the ability of accrual accounting in providing reliable information.
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