Firm life cycle and accrual quality

Abstract

We examine the role of firms' life cycle stages on accrual quality (AQ). Our findings are consistent with an inverted U-shaped pattern in AQ across life cycle stages, where mature firms report the highest quality of accruals, followed by growth and shake-out firms, with firms in the introduction and decline stages reporting the lowest AQ. We further find that AQ worsens when firms move to the decline stage or when they move out of the mature stage to the shake-out and/or decline stage. Our findings are robust to several alternative specifications, subsample analyses, AQ measures, and firm life cycle proxies. We contribute to the literature on accrual quality by providing a broad view of how firm life cycle and accrual quality are intrinsically linked.