Abstract
Our article examines abnormal accruals for a large sample of UK firms between 1994 and 2004, standardized so as to control for firm size, profitability, growth, information asymmetry and debt. We find that financial distress, proxied by a bankruptcy prediction model developed for UK firms (Charitou et al., Citation2004), and profitability relative both to cross-sectional and industry-specific norms, are important determinants of abnormal accruals: this is consistent with Peasnell et al. (Citation2000) and Butler et al. (Citation2004). Our results also confirm the suggestion by Jiraporn (Citation2005) that abnormal accruals for acquired firms do not appear to display a particular ‘sign’.
Notes
1 De Albornoz and Munoz (Citation2004) examine four variant models for abnormal accruals estimation but report that all produce similar rankings across a sample of Spanish listed companies.
2 The mean absolute SAA value for high risk firms (BR > 0.50) is 0.0732, but only 0.0609 for lower-risk firms: this is significant at the 0.01 level using t-tests, Mann–Whitney and Kolmogorov–Smirnov tests.
3 It may also be noted that the slope coefficients for BR, REL-YEAR and REL_IND are insignificantly different between firms taken over and not taken over during 1994–2004–see footnote for .