The Usefulness of Long-Term Accruals

Abacus, Vol. 37, No. 1, 2001

Posted: 5 Nov 2011

See all articles by Wayne R. Guay

Wayne R. Guay

University of Pennsylvania - Accounting Department

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: 30 Nov., 2000

Abstract

Though empirical evidence strongly supports the role of short-term operating accruals in improving operating cash flows as a measure of performance, there is little support or consensus with respect to the effect of long-term accruals. We provide evidence that long-term accruals do reduce timing and matching problems in cash flows. In return-earnings regressions, long-term accruals are found to improve earnings as a measure of firm performance, although not to the same extent as short-term accruals. Further, our analysis highlights differences in economic and statistical properties between short-term and long-term accruals and demonstrates how these differences impede the ability of long-term accruals to improve earnings as a performance measure in a return-earnings context. The incremental explanatory power of long-term accruals is shown to be hampered by the lack of present-value considerations in the existing accounting model, timeliness problems, and measurement error in the indirect method of computing cash flows and accruals.

Keywords: Accrual accounting, Accruals, Cash flows, Corporate performance, Long term, Short term

JEL Classification: M40, M41

Suggested Citation

Guay, Wayne R. and Sidhu, Baljit K., The Usefulness of Long-Term Accruals (30 Nov., 2000). Abacus, Vol. 37, No. 1, 2001, Available at SSRN: https://ssrn.com/abstract=1954239

Wayne R. Guay (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,307
PlumX Metrics