The Impact of Accruals on Investor’s Financing Decision

Abstract

Based on the annual financial statement data of 40 listed companies in China in the past three years, this paper uses hierarchical regression to analyze how companies manipulate financial statements with the accrual basis component to influence investors’ decisions. Accruals are a key measure of a company’s financial health and profitability and have a significant impact on investor behavior. However, accrual basis analysis relies on the accounting standards and the subjective judgment of the company management, and is not perfect. This analysis involves two models, and our research results show that accruals can produce 25% of the explanatory force on stock return, which means accruals will have a significant positive impact on stock return.