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1.
We find that the positive relation between aggregate accruals and one‐year‐ahead market returns documented in Hirshleifer, Hou, and Teoh [2009] is driven by discretionary accruals but not normal accruals. The return forecasting power of aggregate discretionary accruals is robust to choices of sample periods, return measurements, estimation methods, business condition and risk premium proxies, and accrual models used to isolate discretionary accruals. Our extensive analysis shows that aggregate discretionary accruals, in sharp contrast to aggregate normal accruals, contain little information about overall business conditions or aggregate cash flows and display little co‐movement with ICAPM‐motivated risk premium proxies. Our findings imply that aggregate discretionary accruals likely reflect aggregate fluctuations in earnings management, thereby favoring the behavioral explanation that managers time aggregate equity markets to report earnings.  相似文献   

2.
Numerous studies claim that the accrual anomaly in the U.S. stock market is due mostly to temporary accounting distortions arising from accrual accounting. We examine the validity of this explanation in an international setting. Across the 15 developed European equity markets we examine, accounting distortions contribute to the negative relation between accruals and future earnings performance in 14 equity markets. Further, we show that the negative relation between accruals and stock returns could be at least attributable to accounting distortions. In particular, accruals related to accounting distortions predict returns in 7 out of the 9 markets where the accrual anomaly occurs in Europe. Finally, we show that the impact of accounting distortions on the pricing of the accrual component of earnings is stronger in markets with a higher level of trust and a lower level of secrecy.  相似文献   

3.
Accruals correlate closely with the determinants of the conditional equity premium at both the firm and the aggregate levels. The common component of firm‐level accruals, which cannot be diversified away by aggregation, explains the positive relation between aggregate accruals and future stock market returns. The residual component, which accounts for most variation in firm‐level accruals, is responsible for the negative cross‐sectional relation between firm‐level accruals and future stock returns. Consistent with the risk‐based explanation, aggregate accruals, as a proxy for the conditional equity premium, forecast changes in aggregate economic activity. Moreover, we document a similar comovement of earnings with the conditional equity premium at both the firm and the aggregate levels, which helps explain the negative relation between changes in aggregate earnings and contemporaneous market returns.  相似文献   

4.
In this study, we examine whether the accruals quality premium arises from information risk through the following: (i) an investigation of the accruals quality (AQ) premium conditioned by market competition levels; (ii) a test of the impact of an exogenous shock on tax‐loss‐selling incentives; and (iii) an examination of the quality of specific accruals. Consistent with an information risk explanation, we find that the pricing effect of AQ is concentrated in firms with low market competition; that tax‐loss selling is unlikely to explain the observed AQ premium; and that specific accruals quality measures which are more likely to reflect information risk are priced.  相似文献   

5.
A fundamental property of accrual accounting is to smooth temporary timing fluctuations in operating cash flows, indicating an inherent negative correlation between accruals and cash flows. We show that the overall correlation between accruals and cash flows has dramatically declined in magnitude over the past half century and has largely disappeared in more recent years. The adjusted R 2 from regressing (changes in) accruals on (changes in) cash flows drops from about 70% (90%) in the 1960s to near zero (under 20%) in more recent years. In exploring potential reasons for the observed attenuation, we find that increases in non‐timing‐related accrual recognition, as proxied by one‐time and nonoperating items and the frequency of loss firm‐years, explain the majority of the overall decline. On the other hand, temporal changes in the matching between revenues and expenses, and the growth of intangible‐intensive industries play only a limited role in explaining the observed attenuation. Finally, the relative decline of the timing role of accruals does not appear to be associated with an increase in the asymmetrically timely loss recognition role.  相似文献   

6.
Abstract:  Prior research has shown the prevalence of measurement error in models used to estimate aggregate discretionary accruals. In these models, the incremental information content of the various components of accruals is ignored. Limited prior research and data gathered from firms under Securities and Exchange Commission (SEC) litigation indicate that managers use either one or more than one component of accruals simultaneously, in a consistent way to manipulate bottom-line earnings in a given direction. I propose two measures that capture the consistency between the discretionary components of accruals and test their significance in earnings management (EM) detection in firms that have artificially added accrual manipulation and firms that were targeted by the SEC for accrual manipulation. There is evidence that this information is incrementally useful in detecting EM. This finding paves the way for improvements in the discretionary accruals measure by including consistency information from the components of aggregate accruals.  相似文献   

7.
The Persistence and Pricing of the Cash Component of Earnings   总被引:3,自引:0,他引:3  
Prior research shows that the cash component of earnings is more persistent than the accrual component. We decompose the cash component into: (1) the change in the cash balance, (2) issuances/distributions to debt, and (3) issuances/distributions to equity. We find that the higher persistence of the cash component is entirely due to the subcomponent related to equity. The other subcomponents have persistence levels almost identical to accruals. We investigate whether investors understand the implications of the differential persistence of the three subcomponents. Our results suggest that investors correctly price debt and equity issuances/distributions but misprice the change in the cash balance in a similar manner to accruals. Our tests enable us to empirically distinguish the “accrual” and “external financing” anomalies with results implying that the accrual anomaly subsumes the external financing anomaly. Our results also suggest that naive fixation on earnings is unlikely to be a complete explanation for the accrual anomaly. Our findings are more consistent with investors misunderstanding diminishing returns to new investments.  相似文献   

8.
Analyst Earnings Forecast Revisions and the Pricing of Accruals   总被引:2,自引:0,他引:2  
We investigate the relation between two market anomalies to provide insights into analysts role as information intermediaries. Prior research finds that accruals and analyst earnings forecast revisions predict future returns. We find that the accrual and forecast revision strategies generate hedge returns of 15.5% and 5.5% when implemented independently. Strikingly, a combined strategy that uses forecast revisions to refine the accrual strategy generates a hedge return of 28.5%. Firms with consistent accrual and forecast revision signals have less persistent accruals and earnings. We also find that accruals can be used to refine the forecast revision strategy—high accruals are associated with overoptimism in analyst forecasts. Our findings indicate that although forecast revisions reflect information about accrual and earnings persistence beyond that reflected in the level of current year accruals, investors do not fully incorporate this information into their valuation assessments.  相似文献   

9.
In this paper, we examine the relative importance of the cash flow and accruals components of earnings in explaining the variation in UK company equity returns, together with the extent to which these relationships vary by auditor quality. We use a multivariate time-series approach that can be reconciled to a log-linear theoretical valuation model and, unlike the standard linear regression of returns on earnings components, accommodates time-varying discount rates. Based on a decomposition of the variance of equity returns, cash flows and accruals, our results indicate that both cash flow news and accruals news are important drivers of UK equity returns, although cash flows are more influential than accruals. We also find that variation in both earnings components has a more significant effect on returns for clients of large auditors. Finally, our results provide mixed evidence on the question of whether the impact of auditor quality is highest for the accruals component of earnings.  相似文献   

10.
Abstract:  This paper examines the impact of management discretion over accruals on conditional accounting conservatism, defined as the tendency of accountants to recognize bad news on a timelier basis than good news. Prior research suggests that conditional accounting conservatism reflected in earnings is mainly due to the accrual component of earnings, not the cash flow component of earnings. After decomposing total accruals into expected and unexpected accruals, I find that (1) conditional accounting conservatism reflected in accruals is mainly due to unexpected accruals; (2) the negative association between unconditional and conditional accounting conservatism is mainly attributable to unexpected accruals; and (3) firms with higher leverage exhibit conditionally more conservative accounting primarily through unexpected accruals. These results are robust to accrual models that take into account the systematic association between accruals and cash flows and their non-linearity and to the asymmetric persistence of earnings changes specification of conditional accounting conservatism. Taken together, these results suggest that managers exercise their discretion over accruals to expedite the recognition of bad news rather than good news.  相似文献   

11.
This study analyzes the intertemporal behavior of accruals and uses the results to offer some perspectives on models of accruals. Separate adjustment rates are estimated for total and managed accruals and further compared to assess the influence of managers on accrual adjustment. Analysis is further performed to test whether there is an industry-specific adjustment rate for either total or managed accruals. The results show that both the total and managed accruals follow a partial adjustment process rather than a pure-adjustment or random-walk process. Nonetheless, managed accruals exhibit longer adjustment length than total accruals in each industry sample. In addition, total and managed accruals appear to follow certain adjustment patterns that are industry-specific, consistent with the view that common industry practices and norms lead to benchmark adjustment rates to which industry firms conform. Based on the results showing that accruals exhibit lagged and industry-specific adjustments, an extension of the modified Jones model is proposed. The extended model incorporates lagged accruals and an industry accrual index in an attempt to exploit the lagged-adjustment and industry effects and, in that context, improve the temporal classification of accrual innovations. Simple tests show that the extended model achieves substantial improvements in specification over the modified Jones model.  相似文献   

12.
Cash from operations and earnings management in Korea   总被引:1,自引:0,他引:1  
Our study investigates the relationship between the operating performances of Korean industrial firms and the behavior of discretionary accruals during the period 1994-1997. We hypothesize that the degree of earnings management will depend on the firm operating performances. We construct 10 “cash from operations (CFO)” portfolios to test if there are systematic differences in discretionary accruals across portfolios.Four test methods (a mean accrual test, a correlation test, a regression analysis, and a sign-change test) are used to investigate if operating performances affect discretionary accruals differently. We compare three accrual estimation approaches (two discretionary accruals and total accruals) in testing the earnings management hypotheses.The results support the hypothesis that Korean industrial firms manage earnings. When operating performance is poor, the firms tend to choose income-increasing strategies. In addition, when operating performance is extremely poor, some firms tend to take a big bath, while some of the exceptionally well-performing firms tend to select income-decreasing strategies.  相似文献   

13.
We find that the long‐term equity premium is consistent with both GDP growth and portfolio insurance. We use a supply‐side growth model and demonstrate that the arithmetic average stock market return and the returns on corporate assets and debt depend on GDP per capita growth. The implied equity premium matches the U.S. historical average over 1926–2001. Separately, we find that the equity premium tracks the value of a put option on the S&P 500. Our theory predicts a smaller equity premium in the future, assuming that the recent regime shifts in dividend policies, interest rates, and tax rates are permanent.  相似文献   

14.
Abstract:  Recent theoretical work argues that information risk is a non-diversifiable risk factor that is priced in the capital market. Using accruals quality to proxy for information risk, Francis et al. (2005) provide empirical support for this argument using a sample of US firms. This paper re-examines the interplay of accruals quality, information risk and cost of capital in Australia, where a number of important institutional and regulatory differences are hypothesized to affect the relation between accruals quality and cost of capital. The results suggest that, while accruals quality impacts on the cost of capital for Australian firms, some salient differences exist. In contrast to findings for US firms, the costs of debt and equity for Australian firms are largely influenced by accruals quality arising from economic fundamentals (i.e., innate accrual quality) but not discretionary reporting choices (i.e., discretionary accrual quality). This finding is consistent with our predictions based on the Australian institutional and regulatory environment. In addition, using both the asset pricing tests in Francis et al. (2005) and Core et al. (2008) , we provide evidence consistent with accruals quality being a priced risk factor.  相似文献   

15.
This paper examines the potential impacts of artificial smoothing (abnormal accruals) and real smoothing (derivatives) on firm value. We find that the value of the firm decreases with the magnitude of abnormal accruals and increases with the level of derivative use. Moreover, the accrual discount is more pronounced in firms with weak investor protection and the hedging premium is greater for poorly governed firms. These results suggest that although managers can engage in real smoothing to improve the informativeness of firms’ earnings and thus reduce agency costs, they might use artificial techniques to cosmetically improve the income stream in order to expropriate minority shareholders. In further support of agency theories, we report that poor corporate governance motivates the use of abnormal accruals and discourages derivative use.  相似文献   

16.
The last 40 years have seen an extensive literature documenting so‐called anomalies in major capital markets. Evidence of ‘abnormal’ returns associated with trading strategies based on readily observable phenomena such as accounting‐based data involves experimental design choices that can be expected to influence the results. We show how evidence of an accrual anomaly in Australia is sensitive to research design specifications such as the choice of proxy for total accruals; the definition of abnormal returns (i.e. the return generating model); the impact of data trimming as a response to exceptionally large returns; and the choice between value and equal weighting of returns. We show that research design choices do matter and help reconcile conflicting prior evidence of any accrual anomaly in Australia. More broadly, our results suggest the need for caution in drawing inferences from trading strategy tests which claim to identify anomalies.  相似文献   

17.
Focusing only on operating accruals in accrual‐based studies results in a loss of information and noisy measures of both accrual and cash flow components of earnings. Thus, we examine the relative importance of working capital accruals, non‐current operating accruals, and financing accruals with regard to future cash flows from operations (CFO). Using Australian data, we provide evidence that both working capital and non‐current operating accruals are important for explaining future CFO but that the contribution of financing accruals is not significant. Moreover, the asset component of accruals plays a more important role in explaining future CFO than the liability component.  相似文献   

18.
We use securities listed on 13 European equity markets to form size and momentum portfolios. We find limited evidence of a size premium but significant momentum returns in eight sample markets. We find that these premia may not constitute an anomaly because they are consistent with a varying‐beta Capital Asset Pricing Model. We also show that systematic risk is related to the business cycle. Furthermore, the results suggest that although size and especially momentum returns are significant, it would be difficult to exploit them in the short to medium run, because they are positive and sizeable in very few years in our sample.  相似文献   

19.
We find that the accrual anomaly is concentrated in healthy firms and is absent in financially distressed firms. The differential persistence between accruals and cash flows is the main driver of the relationship. Prior studies propose two explanations for the accrual anomaly: (1) accounting distortions of accruals and (2) investment mispricing. Our empirical evidence supports the former and challenges the latter. Our findings also disagree with the idea that the accrual anomaly is distress risk premium in disguise.  相似文献   

20.
We assemble the announcement and actual introduction dates of electronic trading by the leading exchanges of 120 countries to examine the impact of automation, controlling for risk factors and economic conditions. Dividend growth models and international CAPM suggest a significant decline in the equity premium, especially in emerging markets. Consistent with this reduction in the equity premium in the long run, there is a positive short‐term price reaction to the switch. Further analysis of trading turnover supports the notion that electronic trading enhances the liquidity and informativeness of stock markets, leading to a reduction in the cost of capital.  相似文献   

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