Algebraic and Empirical Models for Specification and Control of Characteristics Affecting Accrual-generating Process

In this paper, by developing a set of algebraic- theoretical models, we propose some empirical models for determination, measurement and control of the firm-specific characteristics which theoretically can affect accrual-generating process. We expect the degree by which working capital accruals change following any given shock to sales is affected by these firm characteristics. Using a sample of 2001-2016 annual data of firms listed in TSE, we show that an increase in the degree of heterogeneity in generation of accruals within a specific industry results in an increase in the measurement error of the Jones model, which is measured as the absolute value of its residuals. Other findings also document that the model proposed in this research, which we run it using pooled data of 17 industries and time series data of 200 firms, increases the explanatory power of observed variables, which is likely because of its specification of characteristics affecting accrual-generating process.