How are discretionary accruals priced? Evidence from the Canadian stock market

Mohamed Chakib Kolsi and Osama F. Attayah

International Journal of Managerial and Financial Accounting, 2017, vol. 9, issue 3, 283-302

Abstract: This paper examines the pricing of discretionary accruals of a sample of 159 Canadian listed firms. According to previous literature, firms' accounting manipulations are explained by the opportunism of managers. As a result, discretionary accruals are negatively priced by an efficient capital market. However, another stream of literature argues that discretionary accruals are positively priced by financial markets as they reduce information asymmetry and capture information not reflected by non-discretionary earnings. As a consequence, discretionary accruals enhance the capacity of reported earnings to reflect firm real performance. The evidence of our study is consistent with the latter scenario. Our findings are robust to alternative models of discretionary accruals, to income increasing vs. income decreasing manipulations, to the level of financial performance and finally to financial market proxies.

Keywords: discretionary accruals; efficient capital markets; opportunism; signalling hypothesis. (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:injmfa:v:9:y:2017:i:3:p:283-302

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