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

Keywords

  • Accruals
  • Bad news hoarding
  • Crashes
  • Default risk

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

Fingerprint Dive into the research topics of 'Accruals and price crashes'. Together they form a unique fingerprint.

  • Cite this