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Earnings persistence, accruals and managerial share ownership

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  • Rosalyn Oei
  • Alan Ramsay
  • Paul Mather

Abstract

We investigate the relationship between earnings persistence and a broad measure of total accruals (TACC). We propose and find that in Australia, TACC is less persistent than cash flows. We further propose that the persistence of accrual components is positively associated with the reliability of those components. However, we find that the least reliable accrual component has the greatest persistence and suggest possible reasons for this. We then investigate the relationship between earnings persistence and managerial share ownership, but find no evidence of a consistent, strong relationship. Rather, for the non‐current operating accruals we find evidence consistent with incentive alignment for large firms with high operating cash flows, whereas for small firms we find evidence consistent with efficient contracting.

Suggested Citation

  • Rosalyn Oei & Alan Ramsay & Paul Mather, 2008. "Earnings persistence, accruals and managerial share ownership," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(3), pages 475-502, September.
    • Handle: RePEc:bla:acctfi:v:48:y:2008:i:3:p:475-502
    DOI: 10.1111/j.1467-629X.2007.00248.x
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    2. Panagiotis E. Dimitropoulos & Konstantinos Koronios, 2018. "Earnings Persistence of European Football Clubs under UEFA’s FFP," IJFS, MDPI, vol. 6(2), pages 1-15, April.
    3. Theophillus Rufus Akintoye, Aguguom & Oyesola Salawu, Rafiu, 2018. "Earnings Quality And Firms Financial Performance: A Missing Link In The Listed Firms In Nigeria," International Journal of Contemporary Accounting Issues-IJCAI (formerly International Journal of Accounting & Finance IJAF), The Institute of Chartered Accountants of Nigeria (ICAN), vol. 7(2), pages 32-54, December.
    4. Cheng Y Lai & Yang Li & Yaowen Shan & Stephen Taylor, 2013. "Costs of mandatory international financial reporting standards: Evidence of reduced accrual reliability," Australian Journal of Management, Australian School of Business, vol. 38(3), pages 491-521, December.
    5. David R Gallagher & Peter A Gardner & Camille H Schmidt & Terry S Walter, 2014. "Quality investing in an Australian context," Australian Journal of Management, Australian School of Business, vol. 39(4), pages 615-643, November.
    6. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    7. Dinithi Ranasinghe & Paul Mather & Suzanne Young, 2020. "Board structure and earnings persistence: The mediation effect of board processes," Australian Journal of Management, Australian School of Business, vol. 45(2), pages 266-293, May.
    8. Martina K. Linnenluecke & Jacqueline Birt & Xiaoyan Chen & Xin Ling & Tom Smith, 2017. "Accounting Research in Abacus, A&F, AAR, and AJM from 2008–2015: A Review and Research Agenda," Abacus, Accounting Foundation, University of Sydney, vol. 53(2), pages 159-179, June.
    9. Cheng, Che-Hui & Wu, Po-Chin, 2013. "Nonlinear earnings persistence," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 156-168.
    10. Alexander P. Paton & Damien Cannavan & Stephen Gray & Khoa Hoang, 2020. "Analyst versus model‐based earnings forecasts: implied cost of capital applications," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 4061-4092, December.
    11. Shadi Farshadfar & Reza M. Monem, 2019. "Further evidence of the relationship between accruals and future cash flows," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(1), pages 143-176, March.
    12. Kerrie Woodhouse & Paul Mather & Dinithi Ranasinghe & Tom Smith, 2017. "Externally reported performance measures and benchmarks in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(3), pages 879-905, September.
    13. Mihalcea Mihaela-Maria & Hada Izabela-Diana, 2020. "Earnings Quality Related To Sustainability, Reliability, Performance And Earnings Management," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 155-162, August.

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