Accrual reliability, earnings persistence, and stock prices: revisited

Abstract

Purpose

The purpose of this paper is to replicate Richardson et al.’s (2005) study on how accrual components’ reliability affects earnings persistence and whether investors anticipate the lower earnings persistence through stock return. In this study, the authors use more recent data to examine whether the previous results still hold.

Design/methodology/approach

The authors run the analysis using Richardson et al.’s (2005) design of ordinary least squares and report the results using Fama and Macbeth’s (1973) procedures.

Findings

The results corroborate Richardson et al.’s (2005) conclusions that lower reliability of total accrual (accrual components) leads to lower earnings persistence.

Originality/value

This study replicates Richardson et al. (2005) using more recent US data. The results in this paper confirm the general conclusion in the original study: less reliable accruals lead to lower earnings persistence.

Citation

Dey, R.M. and Lim, L. (2015), "Accrual reliability, earnings persistence, and stock prices: revisited", American Journal of Business, Vol. 30 No. 1, pp. 22-48. https://doi.org/10.1108/AJB-07-2014-0041