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Article: Earnings quality, bankruptcy risk and future cash flows
- Article from:
- Accounting and Business Research
- Article date:
- January 1, 2008
- Author:
CopyrightCopyright Wolters Kluwer (UK) Ltd. 2008. Provided by ProQuest LLC. (Hide copyright information)
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Abstract-Prior research suggests that the quality of accruals may be compromised where the magnitude of accruals is abnormally high, due to the presence of errors in the accruals-estimation process (Dechow and Dichev, 2002; Richardson, 2003). A consequence of this is that abnormal accruals may not map into realised future cash flows to the extent that would normally be expected of accruals data. Indeed, the association may be insignificant if abnormal accruals consist primarily of estimation noise. Our study investigates whether abnormal accruals for UK firms provide incremental insight into future cash flows. In particular, our paper may be viewed as a development of Subramanyam (1996). We ...