Balance Sheet Classification Shifting and Non-Articulation

In this study, we provide direct evidence on the association between balance sheet classification shifting (BSCS) from current to long-term liabilities and non-articulated operating accruals. We first develop a measure of BSCS and then document a positive association between BSCS and non-articulated operating accruals. Further, we find that working capital deficits enhance the association between BSCS and non-articulated operating accruals. Overall, these results suggest that firms strategically manage their balance sheet ratios in order to avoid reporting working capital deficits, which results in non-articulation between the balance sheet and cash flow statement. These findings imply that non-articulation captures balance sheet management, which attracts attention from the SEC and FASB recently