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Corporate cash savings and discretionary accruals

Author

Listed:
  • Jianjun Jia
  • Lili Shao
  • Zhenzhen Sun
  • Fang Zhao

Abstract

Purpose - This paper assesses how discretionary accruals (DAs) affect corporate cash savings policies and the motivation behind this cash saving behavior and, also whether the linkage between DAs and cash saving affect the market-perceived cash value. Design/methodology/approach - We construct the measure of DAs using the previous five-year average information to investigate the association of DAs with the change in cash. Moreover, the Faulkender and Wang (2006) methodology is utilized to examine the market-perceived cash value in DAs. Findings - The key finding is that firms with high DAs save significantly more cash. A one standard deviation increase in DAs saves cash by 12.59%. Furthermore, the value of cash is low for these firms. The effect is stronger in firms with poor governance but not present in financially constrained firms. Research limitations/implications - The empirical evidence highlights DAs have negative effect on market-perceived cash value, which underscores the insight that managers manage earnings opportunistically using DAs. Originality/value - Taken together, we provide more evidence on the literature of accruals in earnings manipulation.

Suggested Citation

  • Jianjun Jia & Lili Shao & Zhenzhen Sun & Fang Zhao, 2020. "Corporate cash savings and discretionary accruals," China Finance Review International, Emerald Group Publishing Limited, vol. 10(4), pages 429-445, April.
    • Handle: RePEc:eme:cfripp:cfri-09-2019-0139
    DOI: 10.1108/CFRI-09-2019-0139
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    Citations

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    Cited by:

    1. Wang, Maolin & Lin, Huiting & Huang, Yehua & Lu, Huiyan, 2023. "Poverty alleviation and firm productivity: Evidence from China's minimum wage system," International Review of Financial Analysis, Elsevier, vol. 87(C).
    2. Xiaowei Kong & Deng-Kui Si & Haiyang Li & Dongmin Kong, 2021. "Does access to credit reduce SMEs’ tax avoidance? Evidence from a regression discontinuity design," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-23, December.
    3. Zhang, Jinjin & Chen, Huili & Zhang, Pengdong & Jiang, Min, 2022. "Product market competition and the value of corporate cash: An agency theory explanation," International Review of Financial Analysis, Elsevier, vol. 84(C).
    4. Wang, Li & Wu, Yiqi & Chen, Yaxin & Dai, Yunhao, 2023. "Distance produces the fear of loss: Customer geographic proximity and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 87(C).
    5. Changling Sun & Ziang Lin & Marek Vochozka & Zuzana Vincúrová, 2022. "Digital transformation and corporate cash holdings in China’s A-share listed companies," Oeconomia Copernicana, Institute of Economic Research, vol. 13(4), pages 1081-1116, December.
    6. Dongmin Kong & Ling Zhu, 2022. "Governments’ Fiscal Squeeze and Firms’ Pollution Emissions: Evidence from a Natural Experiment in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 81(4), pages 833-866, April.
    7. Lee, Chien-Chiang & Wang, Chih-Wei, 2022. "Liquidation threat: Behavior of CEO entrenchment," Finance Research Letters, Elsevier, vol. 47(PA).

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