Download or read book Accounting Accruals and Future Stock Returns written by Wonsun Paek and published by . This book was released on 1996 with total page 164 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accounting Accruals and Stock Returns written by George A. Papanastasopoulos and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, I show a generalization of the negative relation of traditional accruals and percent accruals with future returns in 11 of 16 European countries. Positive abnormal returns from hedge portfolios on both accrual measures summarize the economic significance of this generalization. The magnitude of returns obtained from traditional accruals is higher than that obtained from percent accruals, contrary to existing evidence from the U.S. capital market. The magnitude of the accrual effect on stock returns based on both accrual measures is stronger in countries with higher individualism, lower uncertainty avoidance, higher equity-market development, higher equity-market liquidity, lower transaction costs, higher analyst coverage, lower analyst optimism, and lower ownership concentration. In markets where minorities have legal protection against expropriation by corporate insiders and where accrual accounting is permitted, the accrual effect based only on percent accruals is positive. Earnings opacity does not appear to exhibit a significant influence. Overall, the evidence suggests that cross-country differences in culture, equity-market setting, analysts' research output, investor protection, and ownership structure play an important role in explaining variation on the magnitude of the accrual anomaly in Europe.
Download or read book Earnings Quality and Stock Returns written by Konan Chan and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: An exclusive focus on bottom-line income misses important information about the quality of earnings. Accruals (the difference between accounting earnings and cash flow) are reliably, negatively associated with future stock returns. Earnings increases that are accompanied by high accruals, suggesting low-quality earnings, are associates with poor future returns. We explore various hypotheses - earnings manipulation, extrapolative biases about future growth, and under-reaction to changes in business conditions - to explain accruals' predictive power. Distinctions between the hypotheses are based on evidence from operating performance, the behavior of individual accrual items, discretionary versus nondiscretionary components of accruals, and special items. We check for robustness using within-industry comparisons, and data on U.K. stocks.
Download or read book Weighing the Evidence on the Relation between External Corporate Financing Activities Accruals and Stock Returns written by Daniel A. Cohen and published by . This book was released on 2008 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bradshaw, Richardson, and Sloan (BRS) find a negative relation between their comprehensive measure of corporate financing activities and future stock returns and future profitability. Noticing that accounting accruals are increases in net operatingassets on a company s balance sheet, we question whether it is possible to distinguish between the external financing anomaly documented by BRS and the accrual anomaly first documented by Sloan (1996). We show that once controlling for total accruals, the relation between external financing activities and future stock returns is attenuated and not statistically significant. These findings are consistent with Richardson and Sloan (2003).
Download or read book Earnings Quality and Stock Returns written by Konan Chan and published by . This book was released on 2001 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: An exclusive focus on bottom-line income misses important information about the quality of earnings. Accruals (the difference between accounting earnings and cash flows) are reliably, negatively associated with future stock returns. Earnings increases that accompanied by high accruals, suggesting low-quality earnings, are associated with poor future returns. We explore various hypotheses - earnings manipulation, extrapolative biases about future growth, and under-reaction to business conditions - to explain accruals' predictive power. Distinctions between the hypotheses are based on evidence from operating performance, the behavior of individual accrual items, and discretionary versus nondiscretionary components of accruals.
Download or read book Earnings quality and earnings management written by Sanjay Wikash Bissessur and published by Rozenberg Publishers. This book was released on 2005 with total page 217 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Conservatism Accrual Persistence Asymmetry and Stock Returns written by Gulraze Wakil and published by . This book was released on 2014 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates accounting conservatism's effects on accrual persistence and accrual-related future stock returns. We find conservatism significantly increases accrual persistence and accrual-related future stock returns and more so in high accrual firms. We attribute this to conservatism's reliability and verifiability requirements. However, the effect is statistically insignificant using only low accrual firms. Therefore, conservatism's effects on accruals depend on their magnitude, i.e., asymmetrically. Moreover, increases in persistence and stock returns related to conservatism in high accrual firms also exists in recent years during which prior literature has shown the accruals anomaly to have diminished to insignificant levels. Our paper will be of interest to investors because markets do not fully capture how accounting conservatism affects accruals and also to auditors, lenders, and standard setters since collectively our paper finds accounting conservatism to be a positive trait for financial reporting.
Download or read book The Role of Accruals in Predicting Future Cash Flows and Stock Returns written by Francois Brochet and published by . This book was released on 2009 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: We revisit the role of the cash and accrual components of accounting earnings in predicting future cash flows using out-of-sample predictions, firm-specific regression estimates, and different levels of aggregation of the dependent variable, with market value of equity as a proxy for all future cash flows. We find that, on average, accruals improve upon current cash flow from operations in predicting future cash flows. As accruals' contribution to the prediction of future cash flows varies significantly across firm-quarters, we proceed to investigating determinants of accruals' predictive ability for future cash flows. We find that positive accruals are more likely to improve upon current cash flow in predicting future cash flows. Accruals' contribution is also increasing in cash flow volatility and decreasing in the magnitude of discretionary accruals and of special items. Finally, portfolios formed on stock return predictions using information from current CFO and accruals yield significantly positive returns on average, as opposed to CFO alone. Hence, investors using predictions based on current accounting data to pick stocks are better off taking accruals into account. We also find that Sloan's (1996) accrual anomaly is related to our accrual contribution anomaly. Indeed, when accruals' contribution to future cash flow prediction is the highest, the accrual anomaly vanishes.
Download or read book Earnings Management and the Long term Market Performance of Initial Public Offerings written by Siew Hong Teoh and published by . This book was released on 1994 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accruals Quality Stock Returns Seasonality and the Cost of Equity Capital written by Liquan Zhang and published by . This book was released on 2014 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite considerable interest among accounting researchers in recent years regarding whether accruals quality should be priced by equity markets, and whether any pricing effect detected is attributable to risk, these questions remain among the more controversial in accounting research. This thesis comprises a brief introduction to theory underpinning the pricing of information risk, followed by three essays investigating the empirical relationship between accruals quality and the cost of capital. The final chapter presents my conclusions. Essay 1 examines whether previously documented associations between accruals quality (AQ) and the cost of equity capital for US firms are driven singularly by returns in the month of January, consistent with a tax-loss selling effect (Mashruwala and Mashruwala, 2011). However, I argue that controlling for potential biases arising from low-priced stocks is essential when testing the seasonality of AQ pricing, as the biased returns of low-priced stocks are likely to be systematically related to the tax-loss selling effect. Consequently, I re-examine seasonality in the pricing of AQ and find that (1) for samples excluding low-priced stocks, poor-AQ firms outperform good-AQ in a number of non-January months and collectively across non-January months; and (2) there is a significant AQ premium reflected in the implied cost of equity capital. Overall, my results suggest that the documented AQ premium is unlikely to be singularly driven by tax-loss selling. Essay 2 employs three separate analyses to investigate the source of the observed AQ premium. First, I examine the impact of an exogenous shock to taxation incentives, the introduction of 1986 Tax Reform Act (TRA); Second, I investigate whether the AQ premium is conditioned by the level of competition for firms' stock; and third, I examine the pricing of the quality of specific accruals. I find that: (1) although a November AQ premium exists in the post-TRA period, this premium is unlikely due to tax-loss selling because it is concentrated in the last trading week of the month; (2) the pricing effect of AQ outside January is concentrated in firms with low market competition for their stock; and (3) specific accruals which have the greatest effect on the pricing of equity are priced in stock markets. Overall, my results support the argument that AQ premium is likely to reflect information risk. Essay 3 employs an international sample comprising large market economies where tax-loss selling incentives exist, but which differ in their tax year end dates. I find that abnormal returns to AQ-based hedge portfolios are significantly positive if low-priced returns are controlled. I further show that the apparent AQ premium concentrates in firms with low market competition for their stock. Finally, I demonstrate that poor AQ is associated with higher implied costs of equity capital. Collectively, my results are consistent with the existence of an AQ premium, which is not singularly driven by tax-loss selling effects. Chapter 1 provides a brief introduction essay, which focuses on theory common to the three essays. Chapters 2, 3, and 4 present Essay 1, 2 and 3, respectively, and Section 5 concludes.
Download or read book An Introduction to Analysis of Financial Data with R written by Ruey S. Tsay and published by John Wiley & Sons. This book was released on 2014-08-21 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt: A complete set of statistical tools for beginning financial analysts from a leading authority Written by one of the leading experts on the topic, An Introduction to Analysis of Financial Data with R explores basic concepts of visualization of financial data. Through a fundamental balance between theory and applications, the book supplies readers with an accessible approach to financial econometric models and their applications to real-world empirical research. The author supplies a hands-on introduction to the analysis of financial data using the freely available R software package and case studies to illustrate actual implementations of the discussed methods. The book begins with the basics of financial data, discussing their summary statistics and related visualization methods. Subsequent chapters explore basic time series analysis and simple econometric models for business, finance, and economics as well as related topics including: Linear time series analysis, with coverage of exponential smoothing for forecasting and methods for model comparison Different approaches to calculating asset volatility and various volatility models High-frequency financial data and simple models for price changes, trading intensity, and realized volatility Quantitative methods for risk management, including value at risk and conditional value at risk Econometric and statistical methods for risk assessment based on extreme value theory and quantile regression Throughout the book, the visual nature of the topic is showcased through graphical representations in R, and two detailed case studies demonstrate the relevance of statistics in finance. A related website features additional data sets and R scripts so readers can create their own simulations and test their comprehension of the presented techniques. An Introduction to Analysis of Financial Data with R is an excellent book for introductory courses on time series and business statistics at the upper-undergraduate and graduate level. The book is also an excellent resource for researchers and practitioners in the fields of business, finance, and economics who would like to enhance their understanding of financial data and today's financial markets.
Download or read book The Accrual Anomaly in the U K Stock Market written by Leonidas C. Doukakis and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: On the basis of an accrual decomposition into two components capturing output growth and accounting distortions, this paper analyzes the effects of accounting accruals on firms' future performance in the U.K. stock market. Findings reveal a strong negative association of accruals with future profitability and stock returns. The effect of accruals on future earnings performance is driven only by the component attributable to accounting distortions, and the accrual effect on stock price performance is driven by both the component attributable to accounting distortions and the component attributable to growth. These two components complement each other in driving the accrual effect on stock returns.
Download or read book Two Accrual Anomalies written by Qiang Kang and published by . This book was released on 2010 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Motivated by the findings that the aggregate (discretionary) accruals positively predicts one-year-ahead firm-level stock returns and that there is a considerable amount of co-movement in firm-level (discretionary) accruals, we decompose firm-level (discretionary) accruals into a market-wide component and a firm-specific component. We document robust evidence that the two orthogonal (discretionary) accrual components affect stock returns in qualitatively opposite ways - while the firm-specific component negatively predicts next-period stock returns, firms with a higher level of market-wide component have on average higher next-period stock returns. Moreover, the two accrual-return relations co-exist and the accrual anomaly due to the firm-specific component of (discretionary) accruals largely supersedes the conventional accrual anomaly documented in Sloan (1996) and Xie (2001). Furthermore, a hedge strategy explicitly exploiting the two accrual anomalies yields a significantly higher return than that of a typical accrual strategy built only on firm-level (discretionary) accruals. Our analysis shows that accounting information such as (discretionary) accruals affects the stock market through both market-wide and firm-specific channels. We briefly discuss potential economic rationales behind each of the two accrual anomalies.
Download or read book Advances in Quantitative Analysis of Finance and Accounting written by Cheng F. Lee and published by World Scientific. This book was released on 2008 with total page 270 pages. Available in PDF, EPUB and Kindle. Book excerpt: Advances in Quantitative Analysis of Finance and Accounting is an annual publication designed to disseminate developments in the quantitative analysis of finance and accounting. The publication is a forum for statistical and quantitative analyses of issues in finance and accounting, as well as applications of quantitative methods to problems in financial management, financial accounting, and business management. The objective is to promote interaction between academic research in finance and accounting and applied research in the financial community and accounting profession. The chapters in this volume cover a wide range of important topics, including corporate finance and debt management, earnings management, options and futures, equity market, and portfolio diversification. These topics are very useful for both academicians and practitioners in the area of finance.
Download or read book A Critical Review of Allen E Larson C R and Sloan R G 2013 Accrual reversals earnings and stock returns Journal of Accounting and Economics 56 pp 113 255 written by Johannes Laake and published by GRIN Verlag. This book was released on 2017-05-11 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Literature Review from the year 2016 in the subject Business economics - Investment and Finance, grade: 71, University of Westminster (Westminster Business School), language: English, abstract: Accounting numbers are supposed to be reliable and relevant. However, due to the use of accrual based accounting, reliability can be flawed. Accruals are used to make earnings more relevant than cash flows, hence they put every business transaction into the period in which they belong, but at the cost of reducing reliability. Furthermore, accruals can be used to increase or decrease earnings in one period and if they are used correctly this variation will be reversed with following cash flows. These variations of earnings can have an impact on share prices and corporate decision making. Thus, Allen, Larson and Sloan (2013) investigate to what extent accruals are reversed and what impact they have on the stock market. First, this critical review will summarize the article, then it will critique data, methodology and findings before it finishes with a conclusion.
Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Download or read book Earnings Management Corporate Investments and Stock Returns written by Feixue Xie and published by . This book was released on 2005 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we investigate the relation between accounting accruals and abnormal corporate investments and if the accrual-based anomaly documented by Sloan (1996) is distinct from the investment-based anomaly documented by Titman, Wei, and Xie (2004). Our results indicate that abnormal capital investments are positively associated with accounting accruals and that the mispricing of abnormal capital investments is distinct from the mispricing of discretionary current accruals. In addition, investors can earn substantially higher size-adjusted returns by exploiting both strategies at the same time than by exploiting each individual strategy alone. Finally, our result suggests that the stock market appears to overvalue both discretionary current accruals and abnormal capital expenditures.
