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Discretionary accruals quality, cost of capital, and diversification

Journal

Journal of Accounting, Auditing and Finance

Subject

Accounting

Authors / Editors

Demirkan S;Radhakrishnan S;Urcan O

Publication Year

2012

Abstract

This study examines the discretionary accruals quality of single- and multiple-segment firms. The authors hypothesize and find that the discretionary accruals quality is lower for multiple-segment firms than single-segment firms, and for the same level of discretionary accruals quality, the cost of capital is higher for multiple-segment firms than single-segment firms. These findings suggest that more severe agency problems in multiple-segment firms compared with single-segment firms may lead to poor discretionary accruals quality and agency risk is priced-in as a higher cost of capital.

Keywords

cost of capital; discretionary accruals quality; diversification discount; agency costs

Available on ECCH

No


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