TY - JOUR
T1 - Components of Accruals, Losses and Future Profitability
AU - wu, Hai
AU - Fargher, Neil
PY - 2007/12/1
Y1 - 2007/12/1
N2 - Recent research examines the implications of components of accruals for future profitability. Because the persistence of earnings varies with the level of company profitability, we expect differences between profitable and loss-making companies in the association between components of accruals and future profitability. Using the approach adopted by Richardson, Sloan, Soliman and Tuna (2006) we find evidence suggesting that the components of accruals related to revenue growth and to change in asset turnover are less persistent than the cash flow component of earnings for profitable Australian companies. For loss-making companies, however, the persistence of the accrual component of earnings is found to be higher than for the cash flow component of earnings, suggesting that the accrual component is more informative than the cash flow component in explaining period ahead profitability for many currently unprofitable companies.
AB - Recent research examines the implications of components of accruals for future profitability. Because the persistence of earnings varies with the level of company profitability, we expect differences between profitable and loss-making companies in the association between components of accruals and future profitability. Using the approach adopted by Richardson, Sloan, Soliman and Tuna (2006) we find evidence suggesting that the components of accruals related to revenue growth and to change in asset turnover are less persistent than the cash flow component of earnings for profitable Australian companies. For loss-making companies, however, the persistence of the accrual component of earnings is found to be higher than for the cash flow component of earnings, suggesting that the accrual component is more informative than the cash flow component in explaining period ahead profitability for many currently unprofitable companies.
KW - Accruals
KW - Losses
KW - Persistence
UR - http://www.scopus.com/inward/record.url?scp=84992969964&partnerID=8YFLogxK
U2 - 10.1108/10309610780000695
DO - 10.1108/10309610780000695
M3 - Article
AN - SCOPUS:84992969964
VL - 20
SP - 96
EP - 110
JO - Accounting Research Journal
JF - Accounting Research Journal
SN - 1030-9616
IS - 2
ER -