Understanding the relation between accruals and volatility: A real options-based investment approach

Arif, Salman; Marshall, Nathan T.; Yohn, Teri Lombardi

doi:10.1016/j.jacceco.2016.04.005

Cited by 47 publications

(45 citation statements)

References 50 publications

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“…The empirical literature has generally confirmed the predicted negative relationship between uncertainty and investment (Leahy and Whited 1996;L. T. Bulan 2005;Arif, Marshall, and Yohn 2016;Eisdorfer 2008). For example, recent literature in accounting has explored how political connections can serve as a source of information that mitigates the impact of political uncertainty on investment (Wellman 2017).…”

Section: List Ofmentioning

confidence: 87%

“…My second construct of interest is the supplier's uncertainty. I use the supplier's expected stock return volatility as a proxy for the supplier's uncertainty (Eisdorfer 2008;Arif, Marshall, and Yohn 2016). The supplier's volatility captures information that investors deem relevant to future cash flows and approximates the uncertainty that a manager faces when making an investment decision (Leahy and Whitehead 1996).…”

Section: List Ofmentioning

confidence: 99%

“…The supplier's volatility captures information that investors deem relevant to future cash flows and approximates the uncertainty that a manager faces when making an investment decision (Leahy and Whitehead 1996). Lastly, I proxy for the supplier's investment using changes in working capital 4 (Fairfield, Whisenant, and Yohn 2003;Arif, Marshall, and Yohn 2016).…”

Section: List Ofmentioning

confidence: 99%

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The Effect of a Major Customer’s Information Quality on Its Supplier’s Investment Decisions

Nelson¹

2019

SSRN Journal

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In this study, I examine the role that a major customer's information quality plays in a supplier's investment decisions. I propose that the flow of high-quality information from a customer to its suppliers reduces a supplier's uncertainty and increases supplier investment. Using variation in the customer's disclosures as proxies for information quality, I find evidence that suppliers face less uncertainty, have higher investment levels, and are less responsive to observed uncertainty when their customers have higher quality information. The effect on suppliers appears to be driven by the customers' demand related information, as customer sales guidance is related to supplier investment, but earnings guidance is not. I use restatements as an additional proxy for customer information quality and continue to find reduced sensitivity to uncertainty. These results build on the literature in accounting that investigates information spillovers from one firm to another and provide evidence that customers are a source of information that can mitigate the negative effects of uncertainty. I received helpful comments and suggestions from Hailey Ballew, Brent Schmidt,

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Section: List Ofmentioning

confidence: 87%

Section: List Ofmentioning

confidence: 99%

Section: List Ofmentioning

confidence: 99%

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The Effect of a Major Customer’s Information Quality on Its Supplier’s Investment Decisions

Nelson¹

2019

SSRN Journal

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“…An example of this is an oil production company, where the producer's profitability would exhibit dynamics that resemble oil price dynamics. Moreover, Arif et al (2015) find that accruals (a component of book growth) have a significant negative relation with stock return volatility. In addition, we find strong empirical evidence that book growth is indeed related to book growth variance in our sample.…”

Section: A Main Assumptionsmentioning

confidence: 93%

Firm Fundamentals and Variance Risk Premiums

Lyle

Naughton

2015

SSRN Journal

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“…Zhang (2007), Wu, Zhang and Zhang (2010), Arif et. al (2016), among others, argue that accruals reflect real investment choices of firms.…”

Section: Introductionmentioning

confidence: 99%

Earnings Management and Corporate Investment Decisions

Julio

Yook

2016

FEDS

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We investigate the relationship between earnings management and the efficiency of corporate investment decisions. Using discretionary accruals to measure intertemporal transfers of earnings, we show that earnings management exhibits a concave relationship with the investment sensitivity to investment opportunities as measured by Tobin's Q. We find that the association is concentrated among high Q firms. The effect is present among well governed firms, suggesting that better governed firms manage accruals strategically. The concave relationship suggests that the marginal impact of earnings management on investment efficiency decreases with the amount of earnings management. Using cases of misreporting, we document that excessive earnings management does not improve investment efficiency. Taken together, these results support the view that a moderate amount of earnings management helps improve corporate investment decisions while an excessive amount undoes the benefit of earnings management.

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Understanding the relation between accruals and volatility: A real options-based investment approach

Cited by 47 publications

References 50 publications

The Effect of a Major Customer’s Information Quality on Its Supplier’s Investment Decisions

The Effect of a Major Customer’s Information Quality on Its Supplier’s Investment Decisions

Firm Fundamentals and Variance Risk Premiums

Earnings Management and Corporate Investment Decisions

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