Richard Sloan

A large body of empirical research in accounting investigates the causes and consequences of accruals quality, reaching numerous influential conclusions. Yet little work has been done to systematically evaluate the validity of the underlying measures of accruals quality. We evaluate these measures using three criteria: (i) Is the measure unaffected by the underlying economic determinants of accruals? (ii) Does the measure consistently reflect errors in accruals? and (iii) Does the measure facilitate tests with sufficient power to detect plausible variation in accrual errors? Using a combination of theoretical modeling and numerical simulations, we show that all measures fail at least one of these criteria. Our evaluation provides new interpretations of existing research and guides the choice of measures and the interpretation of results in future research.

Implied equity duration was originally developed to analyze the sensitivity of equity prices to discount rate changes. We demonstrate that implied equity duration is also useful for analyzing the sensitivity of equity prices to pandemic shutdowns. Pandemic shutdowns primarily impact short-term cash flows, thus they have a greater impact on low-duration equities. We show that
implied equity duration has a strong positive relation to U.S. equity returns and analyst forecast revisions during the onset of the 2020 COVID-19 shutdown. Our analysis also demonstrates that the underperformance of “value” stocks during this period is a rational response to their lower durations.