Expected Accrual Models: The Impact of Operating Cash Flows and Reversals of Accruals

Expected Accrual Models: The Impact of Operating Cash Flows and Reversals of Accruals This paper augments the Jones (1991) model with operating cash flows and lagged accruals to evaluate the impact of (1) the negative association between accruals and concurrent cash flows, (2) the positive association between accruals and lagged cash flows, and (3) the reversal of accruals. I find that operating cash flows greatly improve the explanatory and predictive power of the Jones model; but, lagged accruals do not. A market test of the expected and unexpected components of accruals indicates that unexpected accruals are on average informative with respect to concurrent stock returns; however, the market does not fully understand the implications of accruals anticipated at the beginning of the return period. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Expected Accrual Models: The Impact of Operating Cash Flows and Reversals of Accruals

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Kluwer Academic Publishers
Copyright © 2005 by Springer Science + Business Media, Inc.
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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