Earnings persistence, accruals and managerial share ownership

Rosalyn Oei, Alan Ramsay and Paul Mather

Accounting and Finance, 2008, vol. 48, issue 3, pages 475-502

Abstract: We investigate the relationship between earnings persistence and a broad measure of total accruals (TACC). We propose and find that in Australia, TACC is less persistent than cash flows. We further propose that the persistence of accrual components is positively associated with the reliability of those components. However, we find that the least reliable accrual component has the greatest persistence and suggest possible reasons for this. We then investigate the relationship between earnings persistence and managerial share ownership, but find no evidence of a consistent, strong relationship. Rather, for the non-current operating accruals we find evidence consistent with incentive alignment for large firms with high operating cash flows, whereas for small firms we find evidence consistent with efficient contracting. Copyright (c) 2007 The Authors. Journal compilation (c) 2007 AFAANZ.

Date: 2008

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