Cross-Sectional Determinants of Information Quality Proxies and Cost of Capital Measures

Michelle Liu and Peter Wysocki
Additional contact information
Michelle Liu: Department of Economics 695 Park Avenue, HW 15th Floor, New York, NY 10065, USA
Peter Wysocki: School of Business Administration 5250 University Drive, KE 308, Coral Gables, FL 33146-6531, USA

Quarterly Journal of Finance (QJF), 2017, vol. 07, issue 02, 1-33

Abstract: This paper examines the source of the documented empirical link between measures of “accruals quality” and a firm’s cost of capital. First, we argue that when regressions include accruals quality and operating volatility as determinants, these highly correlated measures capture different underlying constructs. Second, we find that in such regressions, the accruals quality measure displays inconsistent associations, while operating volatility variables display robust associations, with various cost of capital measures. Third, we provide research design suggestions to disentangle the effect of accruals quality from operating volatility, and we show how this method leads to less noisy coefficient estimates. These findings should be useful in designing empirical tests of the hypothesized associations involving accruals quality, operating volatility, and cost of capital.

Keywords: Accruals; accruals quality; cash flow; risk; operating risk; operating volatility; cost of capital (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010139216500166
Access to full text is restricted to subscribers

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:wsi:qjfxxx:v:07:y:2017:i:02:n:s2010139216500166

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010139216500166

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().