From Micro to Macro: Aggregate Accruals, Mergers, and Returns. A Discussion of Heater, Nallareddy and Venkatachalam (2021)

32 Pages Posted: 3 Sep 2021

See all articles by AJ Chen

AJ Chen

University of Southern California - Leventhal School of Accounting

Maria Ogneva

University of Southern California - Marshall School of Business

Date Written: July 30, 2021

Abstract

Heater, Nallareddy, and Venkatachalam (2021), hereafter HNV, find that aggregate merger and acquisition (M&A) activity explains the ability of aggregate accruals to predict market-wide returns. In this discussion, we delineate HNV’s contribution to accounting literature and provide a review of the emerging stream of micro-to-macro accounting research. We also discuss HNV’s findings in relation to research beyond accounting, including the literature on aggregate return prediction and mergers and acquisitions. Our discussion draws parallels between HNV’s results and prior empirical evidence pertaining to aggregate investment and merger waves and identifies several puzzling inconsistencies. These inconsistencies highlight the lack of a clearly specified mechanism behind the return-predictive ability of aggregate M&A accruals. Finally, we point out the challenges posed by the small sample size and noisy measures of M&A accruals that may affect HNV’s inferences. We conclude by suggesting several directions for future research.

Keywords: Aggregate accruals, aggregate earnings, micro-to-macro, macro accounting, mergers, aggregate investment

JEL Classification: G00, G1, G3, E03, E2, E32, M41, O4

Suggested Citation

Chen, AJ and Ogneva, Maria, From Micro to Macro: Aggregate Accruals, Mergers, and Returns. A Discussion of Heater, Nallareddy and Venkatachalam (2021) (July 30, 2021). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3899688 or http://dx.doi.org/10.2139/ssrn.3899688

AJ Chen (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA
United States

Maria Ogneva

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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