Managerial Discretion in Accruals and Informational Efficiency

• In Event: Concurrent Session 4.2: Managerial Discretion and Reporting Offenses

Abstract

In this paper we examine the relation between discretionary accruals and informational efficiency. Assuming that efficient prices follow a random walk, we measure informational efficiency by using stock return variance ratios. Our analysis concentrates on a large sample of US non-financial firms between 1988 and 2007. We find that the absolute value of discretionary accruals is positively associated with informational efficiency. The results are consistent with the view that managerial discretion is informative for market participants; discretionary accruals convey useful information to investors and facilitate the price convergence to its fundamental value.

Authors

• Pietro Perotti, University of Graz

• David Windisch, University of Graz