This study examines the ability of current accounting data to explain future cash flows for UK firms, as disclosed under FRS I (1991, revised 1996). Rather than examining price data - from which cash flow implications have to be inferred -a more direct approach used in several recent US studies is adopted, in which actual future cash flow data are examined. Specifically, the methodology is a development of the OLS regression framework employed by Barth, et al. (2001). In the first stage of this study, a replication of their main OLS analysis is provided, and then extended to deal with fixed effects and time trends in the levels of cash flow data. The results show that (i) aggregate accruals have incremental information content beyond that already existing in aggregate earnings; (ii) the main components of aggregate accruals (depreciation and changes in accounts payable, accounts receivable, inventory) have incremental information content beyond that already existing in either earnings or aggregate accruals; and (iii) cash flows alone outperform earnings alone in explaining the variation in future cash flows. Furthermore, accruals (either aggregate or the individual components of accruals) have incremental information content beyond that already existing in cash flows. This evidence supports FRS I's assertion that accruals data should be used in conjunction with cash flow data in predicting future cash flows. The research design is then developed to examine the effect of firm characteristics on the association of earnings, cash flows and accruals with future cash flows. The results show that the decomposition of earnings into cash flows and accruals is more relevant and more value useful when: (i) the length of the operating cycle is short; (ii) the performance level is not extreme; (iii) the magnitude of total accruals is high; and (iii) the probability of default risk is high. The results also reveal that earnings outperform cash flows in explaining the variation in future cash flows when: (i) the magnitude of total accruals is low, and (ii) the probability of default risk is low.

ALes indicateurs comptables publiés par les firmes demeurent une source d’information privilégiée pour le marché financier. Cependant, l’espace de liberté accordé par les règles comptables permet aux managers d’exercer leur jugement afin de publier des états financiers en fonction d’objectifs discrétionnaires. Or, même si l’on considère que les investisseurs sont rationnels dans leurs prises de décisions économiques, il n’est pas évident de distinguer les manipulations comptables opportunistes des manipulations comptables qui représentent un mécanisme par lequel les managers révèlent leurs informations privées en ce qui concerne les perspectives économiques de la firme. Ce constat est à la base de notre question de recherche: étant donné l’importance des pratiques de manipulations des chiffres comptables, quel serait le rôle de ces manipulations dans la valorisation de l’entreprise ? Nous examinerons dans le contexte américain le rôle de la composante discrétionnaire de résultat (les accruals discrétionnaires mesurés par le modèle Dechow, Richardson et Tuna (2003)) sur les rentabilités boursières en se basant sur la méthodologie des études d’association entre les composantes des résultats comptables (le cash-flow d’exploitation, les accruals totaux, les accruals discrétionnaires, les accruals non discrétionnaires et les résultats discrétionnaires) et le rendement boursier. En outre, nous examinerons la nature de la gestion de résultat. Notre échantillon est composé de 480 firmes sur la période [2000-2011]. Les résultats montrent que les accruals discrétionnaires sont valorisés par le marché financier et que cette valorisation est expliquée par des motivations informatives des dirigeants ; la gestion de résultat identifiée dans notre échantillon est informative. / AThe accounting indicators remain a privileged information source for the financial market. However, accounting rules give opportunities to managers to exercise judgment in financial reporting. Despite the rationality of investors, it is not easy to distinguish between the different incentives of accounts manipulations. Managers can use their knowledge about the business to improve the informativeness of financial statement. Manager can have also incentives to mislead their financial statement users by exercising discretions in financial reporting. This report is on the basis of our research question: given the importance of the accounting manipulations practices, what is their role on firm valuation? We will examine in the American context the role of the discretionary accruals measured by Dechow, Richardson and Tuna (2003) on the stock-returns building on the methodology of association studies between the components of the accounting results (The cash-flow, the total accruals, the discretionary accruals, the not discretionary accruals and the discretionary results) and the stock-returns. In addition, we will examine the nature of the earning management. Our sample consists of 480 firms over the period [2000-2011]. The results show that discretionary accruals are valued by the financial market and this valuation is explained by managers’ informative motivations.

A contabilidade brasileira passou por mudanças normativas que deixaram suas demonstrações de acordo com o padrão internacional. Pesquisas realizadas com empresas de capital aberto em vários países do mundo indicam que essa nova norma tende a melhorar a qualidade da informação e deixá-la mais comparável e transparente. Diante disso, o estudo tem como objetivo analisar o impacto da adoção do International Financial Reporting Standard sobre os níveis de gerenciamento de resultados das companhias brasileiras de capital aberto (com exceção das instituições financeiras). A hipótese desenvolvida é de que a nova norma reduz o gerenciamento de resultados nas empresas brasileiras. Os dados foram extraídos das demonstrações contábeis trimestrais dos bancos de dados do Economática e da Comissão de Valores Mobiliários referentes ao período de 2006 a 2011. Para alcançar o objetivo da pesquisa, foi examinada por meio de um modelo proposto a relação entre as variáveis accruals discrionários e a aderência do International Financial Reporting Standard. Na equação, além dessas, foram inseridas as variáveis de controle como o nível de endividamento, o fluxo de caixa operacional, o retorno sobre o ativo e o tamanho da empresa. Para o cálculo dos accruals discricionários foi empregado o Modelo de Jones Modificado. Com base no modelo proposto, foram utilizadas várias técnicas estatísticas e aplicou-se o teste de Kolmogorov-Smirnov para analisar se a amostra possui dados distribuídos normalmente. Em seguida, foi analisada a correlação de Spearman entre as variáveis do modelo proposto e analisada as médias dos accruals, por meio do teste U de Mann-Whitney. Por fim, foi elaborada a análise de regressão com dados dispostos em painel com correção de Newey- West. A correlação e o teste de médias corroboraram a hipótese desenvolvida, porém aregressão não confirmou a hipótese, com significância estatística, de que o novo padrão contábil reduziu o nível de gerenciamento de resultados nas divulgações das demonstrações elaboradas com a adoção das normas IFRS pelas empresas brasileiras de capital aberto. / The Brazilian accounting has undergone regulatory changes that have left their statements according to international standard. Research conducted with publicly traded companies in various countries around the world indicate that this new standard tends to improve the quality of information and make it more comparable and transparent. Thus, the study aims to analyze the impact of adopting International Financial Reporting Standard on the levels of earnings management of Brazilian companies traded (excluding financial institutions). The hypothesis is that the new standard reduces the earnings management in Brazilian companies. Data were extracted from the quarterly financial statements of databases Economática and Comissão de Valores Mobiliários for the period 2006 to 2011. To achieve the objectives of the study was examined by means of a model the relationship between the variables discretionary accruals and International Financial Reporting Standard. In the equation, beyond these, the control variables were entered as the level of debt, the operating cash flow, return on assets and firm size. For the calculation of discretionary accruals, we employed the Modified Jones Model. Based on the proposed model, several statistical techniques were used and applied the Kolmogorov-Smirnov test to examine whether the sample has normally distributed data. Next, we analyzed the Spearman correlation between the variables of the model and analyzed the average, by means of the U of Mann-Whitney. Finally, we elaborate regression analysis with data arranged in a panel with Newey-West correction. The correlation and mean test corroborated the hypothesis developed, but the regression did not confirm the hypothesis with statistical significance that the new accounting standard reduced the level of earnings management disclosures in the financial statements prepared with the adoption of IFRS for publicly traded Brazilian companies.

This thesis examines the extent to which benchmark beating by Australian firms around the earnings level and earnings changes thresholds can be reliably interpreted as evidence of earnings management. A number of recent academic papers challenge the earnings management explanation for the observed kinks in the distribution of net Income. In response to this criticisms, this thesis is motivated to conduct tests of earnings management with a refined methodology of selecting a subset of firms immediately above the threshold that have a priori incentives to achieve the benchmark. This approach allows for investigations to focus on benchmark beating observations where earnings manipulations would be more prevalent and thereby provide a powerful test for the existence of opportunistic reporting. The paper uses a number of unexpected accruals measures including the Kothari et al. (2005) performance matched models. In testing the hypotheses, this thesis utilises two approaches which were; the regression approach and the test of difference of means approach. Based on a broad sample drawn from all listed Australian firms for the years 1995-2007, small profit firms and small increase firms with high price-to-sales ratio were found to have evidence consistent with opportunistic benchmark beating behaviour. Similar results are also documented for benchmark beating firms with low book-to-market (high market-to-book) ratio. This thesis also finds that firms with equity offering incentives who reported improvement in earnings display unexpected accruals consistent with earnings management. In addition, the accounting behaviour of firms which previously incurred a loss is consistent with earnings management explanation. Firms with long strings of earnings increases also appear to use accounting discretion in order to avoid earnings deterioration. Similarly, evidence of earnings management are also displayed by small profit firms which have consistently reported negative earnings. Finally, this thesis provides evidence that resolves the apparent paradox that benchmark beating is evidence of earnings management which is devoid of the statistical artefact argument posited by Durtschi and Easton (2005) and Durtschi and Easton (2008).

abstract: In this dissertation, I examine the source of some of the anomalous capital market outcomes that have been documented for firms with high accruals. Chapter 2 develops and implements a methodology that decomposes a firm's discretionary accruals into a firm-specific and an industry-specific component. I use this decomposition to investigate which component drives the subsequent negative returns associated with firms with high discretionary accruals. My results suggest that these abnormal returns are driven by the firm-specific component of discretionary accruals. Moreover, although industry-specific discretionary accruals do not directly contribute towards this anomaly, I find that it is precisely when industry-specific discretionary accruals are high that firms with high firm-specific discretionary accruals subsequently earn these negative returns. While consistent with irrational mispricing or a rational risk premium associated with high discretionary accruals, these findings also support a transactions-cost based explanation for the accruals anomaly whereby search costs associated with distinguishing between value-relevant and manipulative discretionary accruals can induce investors to overlook potential earnings manipulation. Chapter 3 extends the decomposition to examine the role of firm-specific and industry-specific discretionary accruals in explaining the subsequent market underperformance and negative analysts' forecast errors documented for firms issuing equity. I examine the post-issue market returns and analysts' forecast errors for a sample of seasoned equity issues between 1975 and 2004 and find that offering-year firm-specific discretionary accruals can partially explain these anomalous capital market outcomes. Nonetheless, I find this predictive power of firm-specific accruals to be more pronounced for issues that occur during 1975 - 1989 compared to issues taking place between 1990 and 2004. Additionally, I find no evidence that investors and analysts are more overoptimistic about the prospects of issuers that have both high firm-specific and industry-specific discretionary accruals (compared to firms with high discretionary accruals in general). The results indicate no role for industry-specific discretionary accruals in explaining overoptimistic expectations from seasoned equity issues and suggest the importance of firm-specific factors in inducing earnings manipulation surrounding equity issues. / Dissertation/Thesis / Ph.D. Business Administration 2011

A contabilidade brasileira passou por mudanças normativas que deixaram suas demonstrações de acordo com o padrão internacional. Pesquisas realizadas com empresas de capital aberto em vários países do mundo indicam que essa nova norma tende a melhorar a qualidade da informação e deixá-la mais comparável e transparente. Diante disso, o estudo tem como objetivo analisar o impacto da adoção do International Financial Reporting Standard sobre os níveis de gerenciamento de resultados das companhias brasileiras de capital aberto (com exceção das instituições financeiras). A hipótese desenvolvida é de que a nova norma reduz o gerenciamento de resultados nas empresas brasileiras. Os dados foram extraídos das demonstrações contábeis trimestrais dos bancos de dados do Economática e da Comissão de Valores Mobiliários referentes ao período de 2006 a 2011. Para alcançar o objetivo da pesquisa, foi examinada por meio de um modelo proposto a relação entre as variáveis accruals discrionários e a aderência do International Financial Reporting Standard. Na equação, além dessas, foram inseridas as variáveis de controle como o nível de endividamento, o fluxo de caixa operacional, o retorno sobre o ativo e o tamanho da empresa. Para o cálculo dos accruals discricionários foi empregado o Modelo de Jones Modificado. Com base no modelo proposto, foram utilizadas várias técnicas estatísticas e aplicou-se o teste de Kolmogorov-Smirnov para analisar se a amostra possui dados distribuídos normalmente. Em seguida, foi analisada a correlação de Spearman entre as variáveis do modelo proposto e analisada as médias dos accruals, por meio do teste U de Mann-Whitney. Por fim, foi elaborada a análise de regressão com dados dispostos em painel com correção de Newey- West. A correlação e o teste de médias corroboraram a hipótese desenvolvida, porém aregressão não confirmou a hipótese, com significância estatística, de que o novo padrão contábil reduziu o nível de gerenciamento de resultados nas divulgações das demonstrações elaboradas com a adoção das normas IFRS pelas empresas brasileiras de capital aberto. / The Brazilian accounting has undergone regulatory changes that have left their statements according to international standard. Research conducted with publicly traded companies in various countries around the world indicate that this new standard tends to improve the quality of information and make it more comparable and transparent. Thus, the study aims to analyze the impact of adopting International Financial Reporting Standard on the levels of earnings management of Brazilian companies traded (excluding financial institutions). The hypothesis is that the new standard reduces the earnings management in Brazilian companies. Data were extracted from the quarterly financial statements of databases Economática and Comissão de Valores Mobiliários for the period 2006 to 2011. To achieve the objectives of the study was examined by means of a model the relationship between the variables discretionary accruals and International Financial Reporting Standard. In the equation, beyond these, the control variables were entered as the level of debt, the operating cash flow, return on assets and firm size. For the calculation of discretionary accruals, we employed the Modified Jones Model. Based on the proposed model, several statistical techniques were used and applied the Kolmogorov-Smirnov test to examine whether the sample has normally distributed data. Next, we analyzed the Spearman correlation between the variables of the model and analyzed the average, by means of the U of Mann-Whitney. Finally, we elaborate regression analysis with data arranged in a panel with Newey-West correction. The correlation and mean test corroborated the hypothesis developed, but the regression did not confirm the hypothesis with statistical significance that the new accounting standard reduced the level of earnings management disclosures in the financial statements prepared with the adoption of IFRS for publicly traded Brazilian companies.

Ohlson(1995) and Feltham and Ohlson (1995) explain the importance of the financial reports through clean surplus relation and build up the relationship of market value, book value and earnings. The main structure of Ohlson model is the balance sheet and the income statement; however, the model doesn¡¦t contain the information of cash flows. The purpose of this paper is to find the relationship of accruals, cash flows, and market value. The results of this paper show that to divide net income into accruals and cash flows is good at forecasting abnormal earnings and valuing market value. To divide accruals into separate accruals also is helpful to forecast abnormal earnings and value market value. The cash flows and the accruals are different at forecasting and valuing. Key words¡GAccruals, Cash Flows, Market Value

After Freeman and Tse (1992), and Hayn (1995) indicated that positive-and negative-earning companies have different responses toward earning compositions based on the negative-earning companies¡¦ information content, Chamber (1996), Subramanyam and Wild (1996), Lipe, Bryant and Widner (1998) proposed the relationship between negative and future earning. In addition, Sloan (1996) suggested that accruals in the market have been over-valued. Xie (2001), however, pointed out that over-valued situation comes from manipulable earning compositions. Recently, Dopuch (2005), and Joos and Plesko (2002) reexamined the properties of negative-earning samples and found that investors¡¦ attitude on negative earnings will depend on predicted reversal possibility for valuation of a company. However, Taiwan has no studies on accrual evaluations after differentiating positive and negative earning for companies. This study adopts Mishkin (1983) evaluation model on abnormal accruals to analyze Taiwan 1391 listed company for the sample period from 1986 to 2005. The empirical results suggest that ERCs¡¦ of negative-earning companies are not significant; if the companies are differentiated by persist negative earning and transitory negative earning, investors tend to overprice transitory negative earning. In addition, investors tend to overprice the (discretionary) accruals positive-earning companies, but make accurate evaluation toward persistent earning companies with low reversal possibility. This study also found that persistency of positive-earning companies is longer than negative-earnings. Finally, by using logistic regression to differentiate the possibility of negative-earning accruals, there is no significant difference between the logistic regression model and cash flow classification from the empirical test. Based on the findings, how Taiwan security market response and evaluate discretionary accruals can be further understood.

The purpose of the study is to use the data of the companies that are listed (including OTC) in Taiwan Stock Exchange to examine whether companies engage in earnings management in the years convertible bonds are issued and de-listed. We also want to know if there is any difference of earnings management whether convertible bonds are issued domestically or abroad. Discretionary current accruals are adopted as proxies for earnings management and the regression models are used to control the related variables. The empirical results indicate that companies conduct earnings management in the years convertible bonds are issued and there is no significant difference of earnings management whether convertible bonds are issued in Taiwan or abroad. However, the data after 2001 indicate that companies that issued convertible bonds abroad have less earnings management than those that issued convertible bonds domestically. The results also show no significant difference in the years convertible bonds are de-listed. The reasons may be due to the relatively small sample size or companies may not use discretionary accruals to conduct earnings management.

A growing number of studies suggest that accounting information risk, primarily idiosyncratic in nature, can be diversified away in the capital market. In this dissertation, I show that accounting information risk, proxied by accruals quality, is priced even if it is entirely idiosyncratic. In particular, building on a model from the ambiguity literature, I demonstrate that (1) in an under-diversified market, idiosyncratic information risk is priced even if it is diversifiable, and (2) in a well-diversified market, idiosyncratic information risk is priced when information is subject to managers' discretion and thus ambiguous. The empirical results corroborate the predictions from the model. Specifically, although an association is observed between (unambiguous if risky) innate accruals quality and cost of capital, the association can be largely mitigated through diversification. However, diversification has little impact on the association between (ambiguous) discretionary accruals quality and cost of capital. Taken together, these findings strengthen our understanding of the fundamental role of accounting information as a basis for capital allocation.