Accounting Commons^™

Earnings Persistence And Levels Of The Accrual Ratio And Discretionary Accruals, Kwadwo Asare

Accounting Department Faculty Journal Articles

This paper evaluates how persistent earnings and its accrual and cash flow components are conditional on the modified Jones Model discretionary accruals and the accrual ratio. Consistent with prior research cash flows are more persistent than both earnings and the accruals component of earnings. While the difference in persistence of the extreme deciles of Discretionary Accruals are not very large, those of the Accrual Ratio are much larger, suggesting that the Accrual Ratio can be a simple but effective gauge of earnings persistence and can complement Discretionary Accruals as a measure of the persistence dimension of earnings quality.