Transformations  in
Business & Economics

VALUE RELEVANCE OF ACCRUALS. THE CASE OF LISTED ROMANIAN COMPANIES
Constantin Toma, Mihai Carp, Mihai-Bogdan Afrasinei, Iuliana Eugenia Georgescu

ABSTRACT: Generated by the differences between accrual and cash accounting principles, accruals are an important indicator for the quality of financial information reported by companies, which needs to be included in the set of variables underpinning the capital market investment decisions. The paper aims to assess the influence of discretionary (total and current) accruals as an indicator for the quality of information reported by companies on investment performance, as expressed by share price and market value growth prospects. The value relevance of accruals is estimated by analyzing the financial information specific of companies listed on the Bucharest Stock Exchange, associated with a 10-year period. The results reveal a significant influence of total discretionary accruals on the share price, while current discretionary accruals are correlated with the prospect of increasing stock market performance. The negative influence of discretionary accruals is interpreted at the level of the Romanian stock market as an exponent of earnings management, which is also confirmed by the sensitivity analysis to the specific market segment on which the companies are listed, respectively the evolution of their sales. The results are also robust when introducing control variables in the form of indicators such as: company size, field of activity or indebtedness.

KEYWORDS:  discretionary accruals, value relevance, Romanian capital market

JEL classification:  M14, M41, G12.