We examine the relation between analyst coverage and accruals quality. Because accrual accounting requires managers to estimate the future economic consequences of current events, accruals reflect estimation errors and potential managerial opportunism. This may lower accruals quality and provide noisier signals of firm value. If investors turn to analysts for supplemental information, then demand for analyst services will increase as accruals quality decreases. Because lower accruals quality increases the value of their services, analysts have greater incentives to cover firms with low accruals quality. Our results support this; forecast revisions increase as accruals quality decreases, indicating that accounting reports are relatively more informative for firms with lower quality accruals. We also find that low accruals quality is associated with larger forecast errors and dispersion indicating that analysts are unable to fully resolve the uncertainty in accruals. This is consistent with accruals reflecting information risk.
| Speaker: | Dr Gerald J LOBO Arthur Andersen Chair and Professor of Accounting, University of Houston |
| When: |
2.00 pm - 3.30 pm |
| Venue: | School of Accountancy [Map] Level 4, Meeting Room 4.1 |
| Contact: | Office of the Dean Email: SOAR@smu.edu.sg |