TY  - JOUR
AB  - Purpose– The purpose of this paper is to examine whether managers deliberately use accruals to convey information regarding firm future profitability.Design/methodology/approach– The paper uses contemporaneous earnings and dividend increase announcements in New Zealand as the research setting. This setting reduces the possibility of opportunistic income smoothing by managers and, hence, increases the validity of the inference on the accrual signaling hypothesis. The paper employs a refined accrual model that controls the performance effects in estimating the part of accruals subject to managerial discretion.Findings– The paper finds evidence consistent with managers using both accruals and changes in dividends to communicate private information regarding firm future profitability to the market. In particular, dividend‐increasing firms are observed to report positive accruals that are correlated with the positive market reaction to dividend increase announcements and future profitability. These findings are robust to performance, growth, and post‐earnings announcement drift effects.Originality/value– This paper provides evidence that managers use accruals in conjunction with a corporate event to convey their private information regarding firm profitability. The results of the study are expected to shed more light on signaling aspects of accruals and to some degree alleviate the negative perception of managerial discretions over accruals vastly documented in the earnings management literature. This will hopefully add supporting evidence to the signaling hypothesis of accruals, which has so far received limited attention in the literature.
VL  - 12
IS  - 2
SN  - 0967-5426
DO  - 10.1108/09675421111160682
UR  - https://doi.org/10.1108/09675421111160682
AU  - Koerniadi Hardjo
AU  - Tourani‐Rad Alireza
PY  - 2011
Y1  - 2011/01/01
TI  - The role of accruals as a signal in earnings and dividend announcements : New Zealand evidence
T2  - Journal of Applied Accounting Research
PB  - Emerald Group Publishing Limited
SP  - 108
EP  - 122
Y2  - 2024/05/10
ER  -