The Usefulness of Long‐Term Accruals

Wayne R. Guay and Baljit K. Sidhu

Abacus, 2001, vol. 37, issue 1, 110-131

Abstract: Though empirical evidence strongly supports the role of short‐term operating accruals in improving operating cash flows as a measure of performance, there is little support or consensus with respect to the effect of long‐term accruals. We provide evidence that long‐term accruals do reduce timing and matching problems in cash flows. In return‐earnings regressions, long‐term accruals are found to improve earnings as a measure of firm performance, although not to the same extent as short‐term accruals. Further, our analysis highlights differences in economic and statistical properties between short‐term and long‐term accruals and demonstrates how these differences impede the ability of long‐term accruals to improve earnings as a performance measure in a return‐earnings context. The incremental explanatory power of long‐term accruals is shown to be hampered by the lack of present‐value considerations in the existing accounting model, timeliness problems, and measurement error in the indirect method of computing cash flows and accruals.

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/1467-6281.00076

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:abacus:v:37:y:2001:i:1:p:110-131

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0001-3072

Access Statistics for this article

Abacus is currently edited by G.W. Dean and S. Jones

More articles in Abacus from Accounting Foundation, University of Sydney
Bibliographic data for series maintained by Wiley Content Delivery ().