Discretionary Accounting Choices and the Predictive Ability of Accruals with Respect to Future Cash Flows

Download or read book Discretionary Accounting Choices and the Predictive Ability of Accruals with Respect to Future Cash Flows written by Brad A. Badertscher and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a sample of restatement firms and a meet-or-beat model to classify firms as making discretionary accounting choices for opportunistic meet-or-beat (OP-MB) reasons, we show that originally reported earnings and accrual components are less predictive of future cash flows relative to the restated numbers. We find the opposite is true for firms classified as making discretionary accounting choices for non-OP-MB reasons. We consider a number of competing explanations for these latter results. Our findings are most consistent with the informational hypothesis, weakly consistent with conservative-motivated efficient contracting choices, but inconsistent with opportunistic contracting and misapplication/errors of GAAP explanations.