Accruals and price crashes

Research output: Contribution to journalArticle

Abstract

I investigate the relation between accruals and firm-level price crashes, representing extreme price decreases in weekly returns. I find that high accruals predict a higher price crash probability than low accruals. This finding can be explained by managers’ use of income-increasing accrual estimates to hoard bad news. Once accumulated bad news crosses a tipping point, it is released all at once and results in a price crash. Consistent with this explanation, I find the observed relation to be the strongest for operating assets (the least reliable accrual components). Cross-sectional analyses further support the bad news hoarding explanation.

Original languageEnglish (US)
Pages (from-to)349-399
Number of pages51
JournalReview of Accounting Studies
Volume21
Issue number2
DOIs
StatePublished - Jun 1 2016

Fingerprint

Crash
Accruals
News
Lower probabilities
Price level
Income
Assets
Managers

Keywords

  • Accruals
  • Bad news hoarding
  • Crashes
  • Default risk

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

Cite this

Accruals and price crashes. / Zhu, Wei.

In: Review of Accounting Studies, Vol. 21, No. 2, 01.06.2016, p. 349-399.

Research output: Contribution to journalArticle

Zhu, Wei. / Accruals and price crashes. In: Review of Accounting Studies. 2016 ; Vol. 21, No. 2. pp. 349-399.
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