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The development of an indicator for measuring information quality of discretionary accruals

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  • Shen-Ho Chang
  • Shaio Yan Huang
  • Teng-Shih Wang
  • Dennis B. K. Hwang

Abstract

This article proposes a new model, referred to as Information Quality Indicator of Discretionary Accrual (IQIDA), to study earnings management. A limitation of prior studies on earnings management is examined using the two dimensions of decision validity. Based on the notion of 'information quantity' and 'information quality,' using the original values or absolute values of discretionary accruals (DAs) as the measurement for earnings management could lead to suboptimal judgments and decisions. A new model is proposed as an improvement over those models using DAs. The new model attends to both central tendencies and dispersion degrees of variable sample distributions, which requires a two-step transformation process to achieve.

Suggested Citation

  • Shen-Ho Chang & Shaio Yan Huang & Teng-Shih Wang & Dennis B. K. Hwang, 2014. "The development of an indicator for measuring information quality of discretionary accruals," Applied Financial Economics, Taylor & Francis Journals, vol. 24(18), pages 1177-1186, September.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:18:p:1177-1186
    DOI: 10.1080/09603107.2014.925047
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    References listed on IDEAS

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