2012
DOI: 10.1017/s002210901200018x
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Idiosyncratic Return Volatility and the Information Quality Underlying Managerial Discretion

Abstract: Variation in idiosyncratic return volatility from 1978 to 2009 is attributable to discretionary accrual volatility and the correlation between premanaged earnings and discretionary accruals reflective of information quality across firms. These results are robust to controls for firm operating uncertainty, growth options, business-cycle variations, and firm age and industry effects, and they highlight the importance of managerial discretion in determining idiosyncratic volatility.

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Cited by 102 publications
(56 citation statements)
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“…volatility). Consistent with prior literature (Chen et al, 2012;Francis et al, 2005b;Rajgopal and Venkatachalam, 2011) AQ (total accrual quality) and InnateAQ (innate accrual quality) are positively (negatively) correlated with Vola (stock return volatility). There is some non-linearity between DisAQ (discretionary accrual quality) and Vola (stock return volatility).…”
Section: Empirical Modelssupporting
confidence: 85%
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“…volatility). Consistent with prior literature (Chen et al, 2012;Francis et al, 2005b;Rajgopal and Venkatachalam, 2011) AQ (total accrual quality) and InnateAQ (innate accrual quality) are positively (negatively) correlated with Vola (stock return volatility). There is some non-linearity between DisAQ (discretionary accrual quality) and Vola (stock return volatility).…”
Section: Empirical Modelssupporting
confidence: 85%
“…Meanwhile, recent studies have reported a negative association between earnings quality and stock return volatility (Chen et al, 2012;Francis et al, 2005b;Rajgopal and Venkatachalam, 2011). Hence, the lower the earnings quality, the greater the stock return volatility, the greater the total volatility and the higher the value of stock options.…”
Section: Prior Literature and Hypothesis Developmentmentioning
confidence: 99%
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“…The increase in the volatilities of expected cash-flows could be linked to the documented evidence of deterioration in earnings and financial statements quality and informativeness (Chen, Huang & Jha, 2012;Lev & Zarowin, 1999;Rajgopal & Venkatachalam, 2011). Poor earnings quality or a differential speed in releasing bad versus good news (Verrechia, 1983;Shin, 2003) leads to inferior public information and can lead to higher earnings and return volatilities.…”
Section: Tablementioning
confidence: 99%