This paper has benefited from comments by Jere Francis, Tom Smith, Ray McNamara, Carolyn Winsor, Jan Hollandale, Cath Whelan, Tony van Zijl and reviewers of earlier versions of the research. Nevertheless, any residual errors are the property of the authors.
Pricing of innate and discretionary accruals in Australian debt
Article first published online: 30 NOV 2011
© 2011 The Authors. Accounting and Finance © 2011 AFAANZ
Accounting & Finance
Volume 53, Issue 1, pages 31–53, March 2013
How to Cite
Aldamen, H. and Duncan, K. (2013), Pricing of innate and discretionary accruals in Australian debt. Accounting & Finance, 53: 31–53. doi: 10.1111/j.1467-629X.2011.00458.x
- Issue published online: 15 MAR 2013
- Article first published online: 30 NOV 2011
- Received 12 September 2011; accepted 14 October 2011 by Robert Faff (Editor).
- Information risk;
- Innate accruals;
- Discretionary accruals and debt pricing
This paper addresses the conflicting evidence on the role of accruals in debt pricing. We show that the two subcomponents of accruals quality, innate and discretionary accruals, both impact the debt pricing. Higher innate accruals increases cost of debt, consistent with the prior evidence (Francis et al., 2005; Gray et al., 2009). However, we also find that higher discretionary accruals reduce the cost of debt. This contrasts with the prior evidence of a positive association between discretionary accruals and cost and debt (Francis et al., 2005), and no association (Gray et al., 2009). We show that noisy measurement of cost of debt reconciles these results.