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 language | English (US) |
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Pages (from-to) | 349-399 |
Number of pages | 51 |
Journal | Review of Accounting Studies |
Volume | 21 |
Issue number | 2 |
DOIs | |
State | Published - Jun 1 2016 |
Keywords
- Accruals
- Bad news hoarding
- Crashes
- Default risk
ASJC Scopus subject areas
- Accounting
- General Business, Management and Accounting