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The profitability of trading NOA and accruals: One effect or two?

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  • Gray, Philip
  • Liao, Iris Siyu
  • Strydom, Maria

Abstract

This paper documents a negative relationship between future stock returns and each of accruals and net operating assets (NOA). While accruals and NOA convey unique information for future returns, NOA appears to have an important moderating influence on the accrual effect. A significant accrual effect is observed amongst stocks with high NOA. In contrast, no accrual effect exists for stocks with low NOA. This finding suggests that high levels of accruals per se are not bad news. An accrual effect only arises for firms that have a sustained track record of not converting accruals into cashflow.

Suggested Citation

  • Gray, Philip & Liao, Iris Siyu & Strydom, Maria, 2018. "The profitability of trading NOA and accruals: One effect or two?," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 211-224.
    • Handle: RePEc:eee:finana:v:58:y:2018:i:c:p:211-224
    DOI: 10.1016/j.irfa.2017.10.004
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    Cited by:

    1. Cao, Viet Nga & Gray, Philip & Zhong, Angel, 2019. "Investment-related anomalies in Australia: Evidence and explanations," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 97-109.
    2. Nguyet T. M. Nguyen & Abdullah Iqbal & Radha K. Shiwakoti, 2022. "The context of earnings management and its ability to predict future stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 123-169, July.
    3. Zhang, Xinyue & Bissoondoyal-Bheenick, Emawtee & Zhong, Angel, 2023. "Investor sentiment and stock market anomalies in Australia," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 284-303.

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    More about this item

    Keywords

    Anomaly; Mispricing; Market efficiency; Net operating assets; Accruals;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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