Myopic Market Pricing, Earnings Quality, and the Role of Accrual Duration

• Grant number: 24/19973-3
• Support Opportunities: Scholarships abroad - Research
• Start date: August 01, 2025
• End date: July 31, 2026
• Field of knowledge: Applied Social Sciences - Administration - Accounting
• Principal Investigator: Renê Coppe Pimentel
• Grantee: Renê Coppe Pimentel
• Host Investigator: Ilia D Dichev
• Host Institution: Faculdade de Economia, Administração, Contabilidade e Atuária (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil
• Institution abroad: Emory University, United States

Abstract

Objective: This research project proposes an empirical investigation into the relationship between myopic market pricing and earnings quality, specifically by investigating whether long-term accruals, a particular component of earnings, are associated with earnings management that comes from myopic market pricing.Rationale: If investors focus highly on short-term performance (market short-termism), putting a higher weight on it during the firm valuation process, managers may be pressured to use high levels of long-term accruals, which are more subject to manipulation and uncertainty, and to increase short-term earnings and meet short-term market expectations; thus, a positive association is expected between myopic pricing and long-term accruals.Research Justification and Novelty: Although the time orientation is central to short-termism discussion, previous literature does not consider the length of time between accrual and its associated cash flows, i.e., the accrual duration. In this regard, Dichev and Owens (2024) provide a novel empirical decomposition of accruals according to their time horizons. To the best of the proposer's knowledge, no paper has addressed this subject internationally; hence, the analysis should consider an environment with high economic relevance, a well-accepted database, and previous analyses, such as the US stock market. Relevance & Expected Contribution: The role of accounting accruals and the usefulness of accounting information is at the center of the discussion on short-termism literature because accruals' estimation under uncertainty and the discretion of managers are a source of criticism of the accounting process in providing information for investment decision and valuation. Understanding the link between accruals and short-termism has potential implications not only for literature but also for professional analysts, portfolio managers, and standard setters. Method & Empirical Approach: This research proposal relies on empirical, archival, and quantitative approaches. The empirical assessment of myopically priced firms will rely on implementing a residual income valuation (Abarbanell & Bernard, 2000; Bushee, 2001; Ohlson, 1995) using non-financial US firms. The accounting quality measure is based on accrual duration, a novel empirical decomposition of accruals according to their time horizons (Dichev & Owens, 2024). Additional analyses will follow previous literature presented in this project.