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Author: Zhaoyang Gu Publisher: ISBN: Category : Languages : en Pages : 47
Book Description
We argue and show that aggregation of accrual components (changes in inventories, changes in accounts payable, changes in accounts receivable and depreciation expense) into total accruals results in a loss of mispricing-related information in individual accrual components. This motivates us to examine whether the recent evidence that operating cash flows subsume the mispricing effect associated with total accruals holds when accruals are disaggregated into accrual components. We find that accrual components are associated with future abnormal returns even after controlling for operating cash flows and growth. The three-day earnings announcement period abnormal returns also support the finding. The evidence with respect to change in accounts payable is especially noteworthy because its inclusion in total accruals reduces the mispricing effects of other components considerably. Overall, the prior evidence that operating cash flows subsume the mispricing effects associated with total accruals is likely caused by the aggregation of accrual components into total accruals. Future research would benefit from focusing on accrual components rather than total accruals.
Author: Zhaoyang Gu Publisher: ISBN: Category : Languages : en Pages : 47
Book Description
We argue and show that aggregation of accrual components (changes in inventories, changes in accounts payable, changes in accounts receivable and depreciation expense) into total accruals results in a loss of mispricing-related information in individual accrual components. This motivates us to examine whether the recent evidence that operating cash flows subsume the mispricing effect associated with total accruals holds when accruals are disaggregated into accrual components. We find that accrual components are associated with future abnormal returns even after controlling for operating cash flows and growth. The three-day earnings announcement period abnormal returns also support the finding. The evidence with respect to change in accounts payable is especially noteworthy because its inclusion in total accruals reduces the mispricing effects of other components considerably. Overall, the prior evidence that operating cash flows subsume the mispricing effects associated with total accruals is likely caused by the aggregation of accrual components into total accruals. Future research would benefit from focusing on accrual components rather than total accruals.
Author: C.S. Agnes Cheng Publisher: ISBN: Category : Languages : en Pages :
Book Description
Recent research provides evidence that the operating cash flows-to-price ratio subsumes accruals in explaining future annual returns. This suggests that the accrual anomaly is part of the overall value-glamour anomaly and does not represent the mispricing of earnings. We extend the literature by using multiple measures of abnormal accruals and separate analyses of future annual returns and future earnings announcement returns. The results reveal that the operating cash flows-to-price ratio does not subsume abnormal accruals in explaining future annual returns or future announcement returns. We also find that the operating cash flows-to-price ratio does not subsume total accruals in explaining future announcement returns. These results are not consistent with accruals being a manifestation of the value-glamour anomaly. Our study contributes to the current debate on the existence and the extent of the (abnormal) accrual anomaly. Moreover, the methodology employed can help researchers in exploring mispricing phenomena.
Author: Joshua Livnat Publisher: ISBN: Category : Languages : en Pages :
Book Description
This study explored the accrual anomaly. The study is unique because it analyzed originally reported - unrestated - quarterly data for 1991 through the first quarter of 2004 to calculate accruals and used U.S. SEC filing dates to identify the day on which investors first obtained information about accruals. The study found that the accrual anomaly exists for quarterly accruals as has been found for annual accruals. Future quarterly earnings were found to be more highly associated with current net operating cash flows than with accruals because accruals have less persistence than cash flows. Companies with extremely high (low) current quarterly accruals have significant and negative (positive) abnormal returns through the subsequent four quarters.
Author: Paul Hoefsloot Publisher: LAP Lambert Academic Publishing ISBN: 9783848440184 Category : Languages : en Pages : 64
Book Description
This paper investigates the existence of the accrual anomaly on the Dutch stock market. It documents that there is statistical evidence to accept that the cash flow component of current earnings is significantly more persistent than the accrual component of current earnings with respect to future earnings. Applying a trading strategy this paper shows that a significant abnormal return can de made by constructing a portfolio consisting of firms with relatively low accruals. However, contrary to U.S. findings, a hedge return consisting of a long position in low accruals firms and a short position in high accruals firms (hedge portfolio) generates neither substantial nor statistically significant returns.
Author: Jin Ginger Wu Publisher: ISBN: Category : Corporations Languages : en Pages : 52
Book Description
Interpreting accruals as working capital investment, we hypothesize that firms rationally adjust their investment to respond to discount rate changes. Consistent with the optimal investment hypothesis, we document that (i) the predictive power of accruals for future stock returns increases with the covariations of accruals with past and current stock returns, and (ii) adding investment-based factors into standard factor regressions substantially reduces the magnitude of the accrual anomaly. High accrual firms also have similar corporate governance and entrenchment indexes as low accrual firms. This evidence suggests that the accrual anomaly is more likely to be driven by optimal investment than by investor overreaction to excessive growth or over-investment.
Author: Aydin Uysal Publisher: ISBN: Category : Languages : en Pages : 29
Book Description
In this study, I provide a refinement to the accrual anomaly with a new measure of earnings reversal for a given level of accruals. This new measure is the predicted earnings reversal based on the firm specific cointegration relation between earnings and cash flows implied by the accounting identity that earnings is the sum of the cash flows and the accruals. More specifically, it is the amount of earnings reversal for a given level of accruals based on the long-run equilibrium relation between earnings and cash flows for each firm. As this earnings reversal measure captures the firm specific time-series characteristics of earnings, cash flows, and accruals, I predict that it will yield a better cross-sectional ranking than the level of accruals for the accrual strategy which in turn will yield higher size-adjusted returns. I provide evidence that investing in a hedge portfolio that takes short (long) positions in firms with negative (positive) forecasted earnings reversals implied by the accruals yields annualized size-adjusted returns of 21.53 percent using the in sample parameter estimates alone and 8.80 percent using the out of sample parameter estimates in an additive way to the level of accruals between 1964 and 2008. My findings, which are robust to various earnings measures, sub-periods, sub-samples, and model specifications suggests that the performance of the accrual strategy can be enhanced by considering the firm level time-series characteristics of earnings, cash flows, and accruals.
Author: Linna Shi Publisher: ISBN: Category : Languages : en Pages : 32
Book Description
This paper provides empirical evidence on whether the earnings fixation hypothesis can explain the accrual anomaly originally documented in Sloan (1996). Our analytical model yields the prediction that if investors fixate on reported earnings, the effectiveness of the accrual strategy will increase in the responsiveness of the stock price to earnings and the differential persistence of cash flows relative to accruals. Our empirical evidence confirms our prediction and lends support to the earnings fixation hypothesis.
Author: Zhaoyang Gu
Author: Zhaoyang Gu
Author: Bernardine Mei Fong Low
Author: C.S. Agnes Cheng
Author: Joshua Livnat
Author: Guohua Jiang
Author: Paul Hoefsloot
Author: victor l. bernard and thomas l. stober
Author: Jin Ginger Wu
Author: Aydin Uysal
Author: Linna Shi