The Valuation Of Discretionary Accruals And Antitrust Merger Investigations
<p class="MsoBodyText" style="line-height: normal; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">This study explores the impact of managerial discretion on the information content of reported earnings.<span style="mso-spacerun: yes;"> </span>In particular, we extend the prior research by examining the pricing of discretionary accruals for firms subject to antitrust merger investigation.<span style="mso-spacerun: yes;"> </span>To date, the empirical evidence on managerial discretion and earnings informativeness has been limited, and the pricing of discretionary accruals in the earnings management context of antitrust merger investigations has not been examined.<span style="mso-spacerun: yes;"> </span>We address this gap in the literature, and provide results that are consistent with our expectations. Specifically, the evidence indicates that investigated firms’ discretionary accruals are priced by the stock market, and that such earnings components have incremental information content regarding future profitability.<span style="mso-spacerun: yes;"> </span>In contrast, as expected, the accruals of non-investigated firms are not value-relevant. </span></span></p>