Firm growth and the pricing of discretionary accruals

This paper examines how firm growth conditions the pricing of discretionary accruals. Given the rich growth opportunities and high information asymmetry in high-growth firms, we expect that managers have incentives to use discretionary accruals, especially income increasing (positive) discretionary...

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Bibliographic Details
Published in:Review of quantitative finance and accounting 2015-10, Vol.45 (3), p.561-590
Main Authors: Robin, Ashok, Wu, Qiang
Format: Article
Language:English
Subjects:
Accounting
Accounting/Auditing
Accruals
Asymmetry
Corporate Finance
Costs
Disclosure
Earnings management
Econometrics
Economics and Finance
Finance
Investments
Investors
Operations Research/Decision Theory
Original Research
Prices
Studies
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Summary:This paper examines how firm growth conditions the pricing of discretionary accruals. Given the rich growth opportunities and high information asymmetry in high-growth firms, we expect that managers have incentives to use discretionary accruals, especially income increasing (positive) discretionary accruals, to signal favorable private information to external investors. Our empirical tests reveal that overall there is no significant difference in the pricing of discretionary accruals between high-growth and low-growth firms. However, consistent with our expectations, we find that in high-growth firms compared to low-growth firms, positive discretionary accruals are priced to a greater extent, while negative discretionary accruals are priced to a smaller extent. Additional tests show that positive discretionary accruals have a relatively greater association with future firm performance in high-growth firms. Finally, we find that the pricing of positive discretionary accruals in high-growth firms is predominantly in those firms with high levels of information asymmetry.
ISSN:0924-865X
1573-7179
DOI:10.1007/s11156-014-0447-3