We investigate whether investors price accruals quality, our proxy for the information risk
associated with earnings. Measuring accruals quality (AQ) as the standard deviation of
residuals from regressions relating current accruals to cash flows, we find that poorer AQ is
associated with larger costs of debt and equity. This result is consistent across several
alternative specifications of the AQ metric. We also distinguish between accruals quality
driven by economic fundamentals (innate AQ) versus management choices (discretionary AQ).