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Accruals quality vis-à-vis disclosure quality: Substitutes or complements?

Mouselli, S. and Jaafar, A. and Hussainey, K. (2012) Accruals quality vis-à-vis disclosure quality: Substitutes or complements? The British Accounting Review, 44 (1). pp. 36-46. DOI: 10.1016/j.bar.2011.12.004

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Abstract

The impact of accruals quality and disclosure quality on stock returns is a topical issue in market-based accounting research. Most of the debate is centred on their incremental ability to predict future earnings. Recent studies suggest that higher information risk proxied by either lower accruals quality or lower disclosure quality results in higher stock returns. This paper examines the relationship between accruals quality and disclosure quality, and investigates whether they are complements or substitutes in explaining the time-series variation in portfolio returns. Applying portfolio groupings, we find a positive association between accruals quality and disclosure quality, suggesting that firms with higher disclosure quality engage less in earnings management and have higher accruals quality. Asset pricing tests show that an accruals quality factor and a disclosure quality factor explain the time-series variation in the excess returns of similar sets of portfolios. This suggests that they contain similar information and confirms the substitutive nature of accruals quality and disclosure quality factors.

Item Type: Article
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 09 Dec 2014 16:54
Last Modified: 23 Sep 2015 03:15
ISSN: 0890-8389
URI: http://e.bangor.ac.uk/id/eprint/1438
Identification Number: DOI: 10.1016/j.bar.2011.12.004
Publisher: Elsevier
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