Recent work shows that the role of accrual accounting in mitigating the timing differences between cash flows and operating performance has been disappearing over time (Bushman, Lerman, and Zhang 2016). We argue that even though there is noise in the accrual accounting process, sophisticated...

Economic theory suggests that the industry-wide component of firm performance is more persistent than the firm-specific component. This paper provides evidence on this assertion and tests whether investors misprice these components of earnings. Consistent with predictions, we find greater...

In this paper, we establish a theoretical relationship between earnings components and future stock returns. It shows the informational role of earnings, cash flows and accruals in predicting future stock returns and the key role played by the earnings response coefficient. It also suggests that...

Our goal is to understand the extent to which cash-flow properties explain accruals. Using the Dechow et al. (1998) model, we derive a negative relation between accruals and cash-flow changes and show that the strength of the relation is linked to negative serial correlation in cash-flow...

We test for the effect of limited attention on the valuation of accruals by comparing the immediate and long-term market reactions to earnings announcements between a subsample of firms that disclose only the balance sheet with a subsample of firms that disclose both the balance sheet and the...