TCU Neeley Research Highlight – M.J. Neeley Professor of Accounting Karen Nelson partnered with experts to develop research insights for industry and academic leaders.
August 31, 2023
TCU Neeley School of Business professor of accounting, Karen Nelson, in collaboration with Theodore E. Christensen, and Jenna D’Adduzio, undertook research on explaining patterns of accruals quality in the U.S. Their findings suggest that global trends are trackable across a variety of regions that dispel fears of a continuous decline in financial reporting accuracy over time. (Journal of Accounting and Economics, 2023).
Abstract
We provide evidence that accruals quality in the U.S. has generally improved since 2000, following a decade of decline during the 1990s. Our results indicate that both the initial decline in accruals quality and the subsequent reversal can be explained by an inverse relation with operating cash flow volatility. Moreover, even though patterns of cash flow volatility and accruals quality vary in different regions of the world and relative to the U.S., we find evidence of an inverse relation between accruals quality and cash flow volatility globally. We corroborate our main results in a battery of additional tests, which also indicate that our results are not attributable to other explanations. Overall, our evidence challenges conventional wisdom and suggests that concerns about a sustained decline in accruals quality over time are unwarranted.
