The Accounting Department would like to invite you to a research seminar by Frank Zhang, Professor of Accounting from Yale University.
Professor Zhang's research focuses on empirical capital market research, including stock anomalies, fundamental analysis, investor and analyst behavior, management incentives, and corporate financial reporting. He is interested in both rational and behavioral approaches in studying stock anomalies and cross-sectional variations in stock returns. He has published numerous research papers in leading accounting journals.
Title: Is the Timing Role of Accrual Accounting Disappearing?
Abstract: This study examines the timing role of accrual accounting, a smoothing of temporary timing fluctuations in operating cash flows via accruals. We show that the timing role has dramatically declined over the past fifty years and has largely disappeared in more recent years. This is demonstrated by a temporal decrease in the adjusted R2 and a temporal increase in the coefficient on contemporaneous cash flows in accrual models based on Dechow (1994) and Dechow and Dichev (2002). We explore several potential reasons for the observed attenuation and find that an increase in cash flow volatility, one-time and non-operating items, and loss firms explain over half of the overall decline. On the other hand, a temporal change in the matching between revenues and expenses and an increase of the accrual accounting role in the asymmetrically timely recognition of gains and losses do not significantly contribute to the documented attenuation.