Accrual Estimates of Managerial Discretion over Financial Reporting
The use of accrual expectation models is very common in earnings management studies as researchers often label residuals from such models as “discretionary.” However, attempts at validating whether these estimates represent actual discretion have been both few and inconclusive.
To facilitate comparisons with actual discretion, I have estimated various accrual models for U.S. firms (over 1989-2011) and E.U. firms (over 1999-2012). I computed residuals for the Jones (1991) model, the Dechow, Sloan and Sweeney (1995) and the Beneish (1998) modifications of the Jones model, as well as performance-matched versions of these computations following Kothari, Leone, and Wasley (2005). I estimated these models each year cross-sectionally by Fama-French Industry (48). For each industry-year pairing, I estimated the models with U.S. firms and E.U. firms separately. I computed accruals either from the statement of cash flows (following Collins and Hribar 2002),or from theincome statement (following Beneish, Lee Nichols 2013). To determine whether there are computations of accrual estimates for firms with actual fraud case(s) you are studying, follow the link below:
https://apps.kelley.iu.edu/Beneish/DataSearch/DataSearch/SearchCriteria
