Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*
Kai Du, Xin Daniel Jiang
We examine whether prior findings on the market pricing of accruals quality (AQ) can be attributed to other forms of accounting-based anomalies. Using hedge portfolio analysis and cross-sectional regressions, we find that the return predictive power of AQ overlaps with several other accounting signals. We also find that, similar to other accounting-based anomalies, especially the accruals anomaly, the AQ pricing effect (i) is likely due to mispricing instead of risk pricing, (ii) is attenuated in recent years, and (iii) disappears among firms with cash flow forecasts or long-term growth forecasts. Our findings highlight the importance of controlling for existing return predictive signals when evaluating the market pricing of AQ.
Contemporary Accounting Research
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Accrual Quality Business & Economics 100%
Accrual Accounting Business & Economics 97%
Anomaly Business & Economics 70%
Pricing Business & Economics 47%
Accrual Anomaly Business & Economics 27%
Cross-sectional Regression Business & Economics 22%
Portfolio Analysis Business & Economics 22%
Mispricing Business & Economics 21%
Du, K., & Jiang, X. D. (2020). Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*. Contemporary Accounting Research, 37(4), 2087-2119. https://doi.org/10.1111/1911-3846.12589
Du, Kai ; Jiang, Xin Daniel. / Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*. In: Contemporary Accounting Research. 2020 ; Vol. 37, No. 4. pp. 2087-2119.
@article{403da5f305e04cb4b57ad7e7ed53f803,
title = "Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*",
abstract = "We examine whether prior findings on the market pricing of accruals quality (AQ) can be attributed to other forms of accounting-based anomalies. Using hedge portfolio analysis and cross-sectional regressions, we find that the return predictive power of AQ overlaps with several other accounting signals. We also find that, similar to other accounting-based anomalies, especially the accruals anomaly, the AQ pricing effect (i) is likely due to mispricing instead of risk pricing, (ii) is attenuated in recent years, and (iii) disappears among firms with cash flow forecasts or long-term growth forecasts. Our findings highlight the importance of controlling for existing return predictive signals when evaluating the market pricing of AQ.",
author = "Kai Du and Jiang, {Xin Daniel}",
note = "Funding Information: * Accepted by Partha Mohanram. We received many helpful suggestions from Partha Mohanram and two anonymous reviewers. For comments on various versions of the paper, we thank Vasiliki Athanasakou (discussant), Zhiwu Chen, Foong Soon Cheong, James Choi, Kent Daniel, Merle Ederhof, Jeremiah Green, Roger Ibbotson, Kalin Kolev, Alina Lerman, Dong Lou, Philip Ostromogolsky, Shyam Sunder, Jake Thomas, Michael Welker, Frank Zhang, Lu Zhang, Wei Zhu, and workshop participants at Yale School of Management and the 6th Symposium on Intelligent Investing at Ivey Business School, Western University. We acknowledge financial support from Pennsylvania State University. Kai Du also acknowledges financial support from the Deloitte Foundation Doctoral Fellowship and Yale University. † Corresponding author. Publisher Copyright: {\textcopyright} CAAA",
journal = "Contemporary Accounting Research",
Du, K & Jiang, XD 2020, 'Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*', Contemporary Accounting Research, vol. 37, no. 4, pp. 2087-2119. https://doi.org/10.1111/1911-3846.12589
Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*. / Du, Kai; Jiang, Xin Daniel.
In: Contemporary Accounting Research, Vol. 37, No. 4, 01.12.2020, p. 2087-2119.
T1 - Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*
AU - Du, Kai
AU - Jiang, Xin Daniel
N1 - Funding Information: * Accepted by Partha Mohanram. We received many helpful suggestions from Partha Mohanram and two anonymous reviewers. For comments on various versions of the paper, we thank Vasiliki Athanasakou (discussant), Zhiwu Chen, Foong Soon Cheong, James Choi, Kent Daniel, Merle Ederhof, Jeremiah Green, Roger Ibbotson, Kalin Kolev, Alina Lerman, Dong Lou, Philip Ostromogolsky, Shyam Sunder, Jake Thomas, Michael Welker, Frank Zhang, Lu Zhang, Wei Zhu, and workshop participants at Yale School of Management and the 6th Symposium on Intelligent Investing at Ivey Business School, Western University. We acknowledge financial support from Pennsylvania State University. Kai Du also acknowledges financial support from the Deloitte Foundation Doctoral Fellowship and Yale University. † Corresponding author. Publisher Copyright: © CAAA
N2 - We examine whether prior findings on the market pricing of accruals quality (AQ) can be attributed to other forms of accounting-based anomalies. Using hedge portfolio analysis and cross-sectional regressions, we find that the return predictive power of AQ overlaps with several other accounting signals. We also find that, similar to other accounting-based anomalies, especially the accruals anomaly, the AQ pricing effect (i) is likely due to mispricing instead of risk pricing, (ii) is attenuated in recent years, and (iii) disappears among firms with cash flow forecasts or long-term growth forecasts. Our findings highlight the importance of controlling for existing return predictive signals when evaluating the market pricing of AQ.
AB - We examine whether prior findings on the market pricing of accruals quality (AQ) can be attributed to other forms of accounting-based anomalies. Using hedge portfolio analysis and cross-sectional regressions, we find that the return predictive power of AQ overlaps with several other accounting signals. We also find that, similar to other accounting-based anomalies, especially the accruals anomaly, the AQ pricing effect (i) is likely due to mispricing instead of risk pricing, (ii) is attenuated in recent years, and (iii) disappears among firms with cash flow forecasts or long-term growth forecasts. Our findings highlight the importance of controlling for existing return predictive signals when evaluating the market pricing of AQ.
JO - Contemporary Accounting Research
JF - Contemporary Accounting Research
Du K, Jiang XD. Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*. Contemporary Accounting Research. 2020 Dec 1;37(4):2087-2119. doi: 10.1111/1911-3846.12589