Why do accruals predict earnings?

• 成果类型: Article
• 署名作者: Lewellen, Jonathan; Resutek, Robert J.
• 署名单位: Dartmouth College; University System of Georgia; University of Georgia
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2018.12.003
• 发表日期: 2019
• 关键词: Cash flows; persistence; management; performance; reversals; QUALITY; GROWTH

摘要

Higher accruals are associated with lower subsequent earnings. We show this phenomenon can be explained by the way sales, profits, and working capital respond to changes in a firm's product markets. Empirically, high accruals predict high subsequent sales growth but a long-lasting drop in both profits and profitability. Accruals also predict an increase in future competition, suggesting that accruals are correlated with abnormally high-and, in equilibrium, transitory-true profitability that attracts new entrants to the industry. Overall, the predictive power of accruals is better explained by product-market effects than by measurement error in accruals or diminishing returns from investment. (C) 2018 Elsevier B.V. All rights reserved.