The Effect of Accruals Quality on Bond Prices

• In Event: Financial Accounting & Reporting # 5 (Dialogue)
  In Dialogue Session: Financial Accounting and Reporting # 5 (Dialogue)

Abstract

We examine the effects of accruals quality on the returns of bonds. The findings suggest that future bond returns are predictably related to accruals quality, in a way similar to stock returns. Specifically, the future bond returns of firms with high accruals quality underperform those of firms with low accruals quality. These results are robust to various specifications, including pooled tests where abnormal bond returns are calculated by matching bonds to characteristic-based portfolios along dimensions of duration and rating.

Authors

• Pietro Perotti, University of Graz

• Richard A Price, Utah State University

• Christopher J. Skousen, Utah State University