Abstract
This paper explores the interaction between corporate disclosure and recognition practices by examining the relation between financial analysts' ratings of disclosure quality, discretionary accruals, and the earnings–return association. The results suggest that firms with higher-quality disclosures use discretionary accruals to smooth earnings more aggressively than firms with lower-quality disclosures. As a result, the timeliness with which accounting earnings capture bad news is inversely related to disclosure quality. These results suggest that higher-quality disclosure can be accompanied by increased earnings management.
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