Events
Listed below are forthcoming events either hosted by the School of Accounting and Commercial Law (SACL) or the Centre for Accounting, Governance and Taxation Research (CAGTR) or the Chair in Public Finance.
"Idiosyncratic Return Volatility, Earnings Quality, and Firm Age": Professor Brian Rountree (Rice University)
Date: 14 June 2013
Time: 11.00 am
Venue: RWW 129
This study links the trend in two earnings quality metrics: 1) the standard deviation of residuals from the Dechow and Dichev (2002) model, and 2) squared residuals from the Jones (1991) modelto firm age (defined using data about firm incorporation/founding dates). The results reveal the significant increasing trends in both measures during the 1962-2006 period are related to the dramatic decrease in firm age coupled with the increasing percentage of market capitalization thatyoung firms had during the period. Given young firms are expected to have greater variation inaccruals, the temporal trends in the measures are not indicative of worse earnings quality over time.We further illustrate after accounting for firm age, there is no association between earnings quality measures and the trend in idiosyncratic return volatility during the sample period. Overall, researchers need to carefully consider the confounding effects of firm age on measures of earnings quality when conducting empirical tests.