Effects of firm life cycle on matching and accrual quality

Abstract

ABSTRACT This study examines the effects of life cycle stages on the quality of revenue-expense matching and accruals of Brazilian public listed companies, and how matching affects accrual quality. Studies on the effects of firm life cycle stages on revenue-expense matching are still incipient. Furthermore, there is no prior study interconnecting the two conceptual and empirical models in a joint perspective. The study brings evidence that firm life cycle is a relevant factor in the analysis of the association between revenues and expenses and accruals with operating cash flows. This association, if properly carried out by firms, can benefit investors, analysts, and creditors. Evidence suggests that firms with more resources available due to their life cycle, such as maturity, have a better matching quality and, consequently, also have higher accrual quality. This allows for a better understanding of firm performance and cash inflows and outflows. This study is descriptive and quantitative, and the effects of life cycle stages on matching and accrual quality were verified by multiple linear regressions using ordinary least squares, controlling for industry and year fixed effects. Our sample consists of 399 public companies listed on the B3 between 2010 and 2021 using the models of Dechow and Dichev (2002) and Dichev and Tang (2008). The results show that life cycles affect revenue-expense matching and accrual quality differently in the Brazilian environment. Also, our findings expand prior literature by identifying that firms with better matching quality are associated with better accrual quality.

Keywords

• life cycle stages
• matching
• accrual quality