Why Do Accruals Predict Earnings? Why Do Accruals Predict Earnings?

  • Jonathan Lewellen, NBER jon. lewellen
  • Published 2014

Abstract

We argue that competition in product markets, rather than measurement error in accruals or diminishing marginal returns from investment, explains why accruals are less persistent than cash flows. High accruals predict a long-lasting drop in profits and profitability—arising from disproportionate growth in both cost of goods sold and selling, general, and… (More)

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