Cost of Equity and Risk in Cash Flow and Accrual Components of Earnings

@inproceedings{Nekrasov2012CostOE,
  title={Cost of Equity and Risk in Cash Flow and Accrual Components of Earnings},
  author={Alexander Sergeevich Nekrasov},
  year={2012}
}
This paper shows that risk in cash flow and accrual components of earnings is an important determinant of a firm’s cost of equity beyond risk in earnings. The paper develops and tests a model that demonstrates how earnings smoothing hinders the ability of earnings to capture firm risk and how cash flows and accruals can be used to unravel the effect of smoothing in estimating firm risk. The model also shows that the sensitivity of firm risk to risk in cash flows and accruals depends on the… CONTINUE READING