Discretionary accruals: signalling or earnings management in Australia?

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Pham, Hai Yen
Chung, Richard Yiu-Ming
Roca, Eduardo
Bao, Ben-Hsien
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2019
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Abstract

We investigate the signalling effect of discretionary accruals (DAC). Although we find that discretionary accruals are insignificantly related to contemporaneous stock returns, we uncover that income‐increasing discretionary accruals of GAAP‐complying growth firms are significantly and positively related to contemporaneous stock returns. Furthermore, we find that this positive effect is stronger among firms with better corporate governance mechanisms, such as Board of Directors Independence, Audit Committee Independence and Large Shareholders’ Ownership. In addition to contemporaneous stock returns, we also find similar results with the future increase in dividends. Our findings are consistent with the argument that corporate governance can enhance the signalling effect of reported earnings of GAAP‐complying growth firms.

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Accounting & Finance

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This publication has been entered into Griffith Research Online as an Advanced Online Version.

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Applied economics

Accounting, auditing and accountability

Banking, finance and investment

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