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

Authors: Mohamed Chakib Kolsi; Osama F. Attayah

Addresses: Department of Accounting, Emirates College of Technology Abu Dhabi, P.O. Box 41009, UAE; Faculty of Economic Sciences and Management, University of Sfax, B.P. 3018, Sfax, Tunisia ' Department of Accounting, Emirates College of Technology Abu Dhabi, P.O. Box 41009, UAE

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.

DOI: 10.1504/IJMFA.2017.086692

International Journal of Managerial and Financial Accounting, 2017 Vol.9 No.3, pp.283 - 302

Available online: 09 Sep 2017 *

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