Cross-Sectional Determinants of Information Quality Proxies and Cost of Capital Measures

Michelle Liu, Peter Wysocki

Research output: Contribution to journalArticlepeer-review

12 Scopus citations


This paper examines the source of the documented empirical link between measures of "accruals quality" and a firm's cost of capital. First, we argue that when regressions include accruals quality and operating volatility as determinants, these highly correlated measures capture different underlying constructs. Second, we find that in such regressions, the accruals quality measure displays inconsistent associations, while operating volatility variables display robust associations, with various cost of capital measures. Third, we provide research design suggestions to disentangle the effect of accruals quality from operating volatility, and we show how this method leads to less noisy coefficient estimates. These findings should be useful in designing empirical tests of the hypothesized associations involving accruals quality, operating volatility, and cost of capital.

Original languageEnglish (US)
Article number1650016
JournalQuarterly Journal of Finance
Issue number2
StatePublished - Jun 1 2017


  • Accruals
  • accruals quality
  • cash flow
  • cost of capital
  • operating risk
  • operating volatility
  • risk

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Strategy and Management


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