The pricing of Discretionary Accruals: Empirical Evidence from Tunisia

Résumé du document

The accounting literature is replete with studies on earnings management. In general, these studies suggest that managers mislead the market by manipulating the accrual component of earnings. A few studies, however, suggest that the presence of discretionary accruals does not necessarily imply such opportunistic behavior by managers. They argue that the presence of discretionary accruals is also consistent with managers using their reporting discretion to smooth earnings and signal their private information. Such use of discretion is referred to as efficient earnings management (EEM). This paper provides some insights on EEM by examining the moderating effect of growth opportunities on both the earnings return relationship (ERR), and the pricing of discretionary accruals by the Tunisian market. Our results show improved ERR and pricing of discretionary accruals in high-growth firms.

Extraits

[...] The second reveals that the desegregation of the net income in its components "nondiscretionary earning" and " discretionary accruals " improves the explanatory power of the regression. The Tunisian investor thus gives importance to each component of the accounting earning. The last makes it possible to deduce that the discretionary accruals are priced by the investors on the Tunisian market, the latter add information compared to that contained in cash-flows and the nondiscretionary earning (improvement of the explanatory power of the model). [...]

[...] We expect IOS to increase the pricing of discretionary accruals by the market. The specification of the regression model to examine the differential pricing of discretionary accruals based on IOS is given by: R it = a1 + b1 NDEARN it + b2 DA it + c1 NDEARN it *IOS it + c2 DA it *IOS it + ε2 Where, NDEARN it : Nondiscretionary earning per share of company during the year adjusted by the share ‘price at the beginning of the period; DA it : discretionary Accruals per share of company during the year adjusted by the share ‘price at the beginning of the period; IOS it: market to book ratio per share of company during the year adjusted by the share ‘price at the beginning of the period Sample and Descriptive Statistics We tested the hypotheses on a sample of Tunisian firms which are included on the Tunisian stock exchange and belong to all sectors except financial and banking sectors (table 1). [...]

[...] Table Coefficients estimation of the discretionary accruals pricing model * Significant at the 10% level Significant at the level Significant at the level Desegregation thus improves the capacity of the benefit to explain the stock returns, which confirms the second assumption. Explanatory power of the nondiscretionary result which is master key to when one adds the discretionary accruals to the model. In the same way, it is noted that the addition of the variable " discretionary accruals " improves the explanatory power of model 4. It comes out from these results that in the Tunisian context, the discretionary accruals are priced by the investors. Moreover, one notes that the discretionary accruals are positively correlated with the stock returns. [...]

[...] However, this market pricing of discretionary accruals is enhanced by IOS [c2 ( 0.45652 ) is significantly positive at .001 level]. The positive effect of IOS on market pricing of DA supports the view that when IOS is high, EEM is relatively prevalent. Globally, findings have showed that communication perspective is more pervasive in the Tunisian context while growth levels have positive effects on the pricing of discretionary accruals Conclusion In this study, we have attempted to investigate how discretionary accruals are priced by Tunisian market and to provide evidence on how pricing discretionary accruals depend on certain characteristics of the firm. [...]

[...] Zéghal .(2000). contenu informationnel et la capacité prédictive des mesures de performance financière : une comparaison France, Etats-Unis et Suisse”, Centre de recherche en gestion, Document 01-2000. Dechow, P. (1994). “Accounting earnings and cash-flows as measures of firm performance, the role of accounting accruals”, Journal of Accounting and Economics 3-42. Dechow, P., R. Sloan, and A. Sweeney. (1995). “Causes and consequences of earnings manipulation, An analysis of firms subject to enforcement actions by the SEC”. [...]