Corporate cash savings and discretionary accruals

Abstract

PurposeThis 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/approachWe 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.FindingsThe 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/implicationsThe empirical evidence highlights DAs have negative effect on market-perceived cash value, which underscores the insight that managers manage earnings opportunistically using DAs.Originality/valueTaken together, we provide more evidence on the literature of accruals in earnings manipulation.

Digital transformation and corporate cash holdings in China's A-share listed companies

“…Gao et al (2013) argue that managers those in public firms tend to hold more cash than private firms because of higher agency costs. Jia et al (2020) contend that firms with high discretionary accruals save more cash with low value.…”

Logical Fallacy Dalam Riset Akuntansi Positivisme

“…Total accruals (TA) dalam laba akuntansi dapat diketahui dengan mengurangkan arus kas operasi dari laba akuntansi. Secara kon septual, TA yang melekat pada laba akun tansi tersebut mencakup dua komponen, yaitu nondiscretionary accruals (NDA) dan discretionary accruals (DA) (lihat Jia et al, 2020;Moscariello et al, 2020). NDA adalah besaran akrual yang tidak dapat dipengaruhi oleh kebijakan manajer, karena sepenuhnya tunduk pada standar akuntansi.…”

Does access to credit reduce SMEs’ tax avoidance? Evidence from a regression discontinuity design

“…First, high external financing costs cause financially constrained firms to rely substantially on internal financing (e.g., tax avoidance) to raise funds. The "cash flow effect" hypothesis holds that companies can save internal cash through reasonable tax avoidance (Dyreng et al 2008;Law and Mills 2015;Edwards et al 2016;Goh et al 2016;Jia et al 2020), thus reducing reliance on external financing, such as bank credit. Additionally, the non-debt tax shield formed through firms' tax avoidance can replace the debt tax shield, leading to a decline in corporate debt financing needs.…”