The Greater Market Mis-Valuation of Accruals When the Stock Performance is Poor

35 Pages Posted: 28 Nov 2005

See all articles by Guohua Jiang

Guohua Jiang

Peking University - Guanghua School of Management

Date Written: November 24, 2005

Abstract

I investigate the relationship between contemporaneous stock price performance and the persistence of accrued earnings, and its impact on the accrual anomaly. I find that in a fiscal year, accrued earnings for stocks that have performed poorly are less persistent in predicting future earnings than accrued earnings for stocks that have performed moderately. I further find that a hedge-strategy based on accruals earns greater abnormal returns following bad-news years. The results are consistent with conservative accounting causing accrued earnings to be even less persistent in bad-news year and investors failing to efficiently price this differential in persistence.

Keywords: conservative accounting, accrual anomaly, efficient market

JEL Classification: M41, M44, G12, G14

Suggested Citation

Jiang, Guohua, The Greater Market Mis-Valuation of Accruals When the Stock Performance is Poor (November 24, 2005). Available at SSRN: https://ssrn.com/abstract=855864 or http://dx.doi.org/10.2139/ssrn.855864

Guohua Jiang (Contact Author)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China
+8610 62757930 (Phone)
+8610 62751470 (Fax)

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