Evidence on the association between accruals and voluntary disclosure

Prior research shows that the accrual component of current earnings is less persistent than the cash component. Prior research also shows that investors overweight the persistence of accruals. In this thesis, I investigate the association between accruals and voluntary disclosure. First, I investigate the association between the magnitude of absolute accruals and the decision by managers to increase disclosures. I find evidence that suggests managers increase disclosures as the magnitude of absolute accruals increases. This result is consistent with the suggestion that managers prefer accurately priced equity (Healy and Palepu, 1992) and tend to increase disclosure when the likelihood of equity mispricing increases.; Second, I investigate whether voluntary disclosures associated with earnings-announcement conference calls affect investors' assessments of the persistence of current accruals for future earnings. I find that voluntary disclosure is inversely related to the mispricing of accruals. While accrual mispricing persists for low-disclosure firms, accruals appear to be accurately priced for high-disclosure firms. In addition, accrual-based hedge-portfolio regressions demonstrate significantly higher returns within low-disclosure firms relative to high-disclosure firms.; Finally, I extend the disclosure literature by developing a returns-based metric that captures variation in voluntary disclosure across earnings announcements. The metric is calculated based on the difference between actual abnormal returns and expected abnormal returns conditional on unexpected earnings. In validation tests, I show that the metric is positively correlated with the presence of a conference call and the length of a conference call.; I repeat the previous hypotheses tests after substituting my alternative metric for the conference call metric. I find that voluntary disclosure is positively correlated with the magnitude of absolute accruals. I also find that large earnings-management based accruals are positively correlated with my alternative disclosure metric. However, tests of the association between my returns-based voluntary disclosure metric and accrual mispricing reveal no reduction in the mispricing of accruals.; Collectively, my findings are consistent with the notion that managers increase disclosures when the magnitude of absolute accruals increases and conference-call related voluntary disclosures play an important role in helping investors assess the persistence of current accruals for future earnings.