ABSTRACT We examine whether prior findings on the market pricing of accruals quality (AQ) can be attributed to other forms of accounting‐based anomalies. Using hedge portfolio analysis and cross‐sectional regressions, we find that the return predictive power of AQ overlaps with several other accounting signals. We also find that, similar to other accounting‐based anomalies, especially the accruals anomaly, the AQ pricing effect (i) is likely due to mispricing instead of risk pricing, (ii) is attenuated in recent years, and (iii) disappears among firms with cash flow forecasts or long‐term growth forecasts. Our findings highlight the importance of controlling for existing return predictive signals when evaluating the market pricing of AQ.

SEC-mandated, machine-readable structured filings are an alternative source to Compustat for companies' accounting data. Discrepancies between as-filed and Compustat data, potentially a result of Compustat's standardizations, are more pronounced for firms with complex financial reporting. We show that these data discrepancies affect inferences in four research settings: (i) properties of accrual accounting, including accruals-cash flow relationships and abnormal accruals; (ii) real earnings management; (iii) the existence and magnitude of six of 21 accounting-based anomalies examined, including the accruals anomaly; and (iv) disclosure quality assessments based on the hierarchical structure of financial statement items. FactSet data also exhibit significant and often larger discrepancies from as-filed data. Our findings demonstrate the importance of these data discrepancies for the interpretation of empirical tests.

Abstract This study examines whether using cash‐flow‐based performance metrics (CFM) in CEO compensation contracts affects the design of loan contracts. Cash‐flow‐based performance evaluation explicitly motivates the CEO to improve the firm's cash flows, which may enhance debt repayment ability and reduce credit risk. We thus hypothesize that lenders, anticipating this incentive effect, offer lower loan spreads and reduce cash‐flow‐based performance covenants when firms use CFM in CEO compensation contracts. Consistent with our expectation, the use of CFM is associated with lower loan spreads and less use of cash‐flow‐based performance covenants. These findings remain robust after we account for endogeneity. Furthermore, these results are more pronounced in firms with higher credit risk or risk of cash flow shortfalls, suggesting that lenders consider internally generated cash flows more valuable when borrowers face higher external financing costs or have greater liquidity concerns. Additionally, we find that using CFM is associated with improved cash flow performance and enhanced creditworthiness, which supports the notion that CFM is an effective incentive mechanism. Overall, our evidence suggests that lenders consider the incentive effect of cash‐flow‐based performance evaluation in the debt contracting process.