Firm Life Cycle and Accrual Quality

We examine the role of firms’ life cycle stages on accrual quality. We expand evidence from prior studies that investigate the properties of firm life cycle and accrual quality in an integrated approach. We find that growth and mature firms report higher quality of accruals than firms in the introduction and decline stages. Our result persists when we analyze firms that move to the mature stage or the decline stage. Our findings are robust to several alternative specifications, measurement and sampling. Moreover, we find that firms’ corporate governance or internal control weaknesses do not drive our results. The evidence provides a broad view of how firm life cycle and accrual quality are intrinsically linked. Our results are important to investors, auditors and analysts since this paper sheds some new light on another factor that affect the accrual quality and consequently financial reporting, the firm life cycle