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Accrual anomaly and corporate financing activities

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  • Papanastasopoulos, Georgios

Abstract

We examine the mispricing versus rational explanation of the accrual anomaly for U.K. listed firms by focusing on the interaction between accruals and equity financing activities. Portfolio-level analyses and firm-level regressions indicate that the negative relation of accruals with future profitability and stock returns occurs only when firms with low accruals that repurchase equity and firms with high accruals that issue equity are considered. In contrary, this negative relation is dampened by the inclusion of firms with low (high) accruals that issue (repurchase) equity. Our evidence suggests that investors misprice accruals in U.K. and casts doubt on the rational explanation.

Suggested Citation

  • Papanastasopoulos, Georgios, 2017. "Accrual anomaly and corporate financing activities," Finance Research Letters, Elsevier, vol. 20(C), pages 125-129.
    • Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:125-129
    DOI: 10.1016/j.frl.2016.09.012
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    1. Cordeiro Moreira, Jeíce Catrine & Lima, Gerlando A.S.F. & Góis, Alan Diógenes, 2019. "Effects of institutional factors on the accruals anomaly in Latin America," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.

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    More about this item

    Keywords

    Accruals; Profitability; Returns; Mispricing; Risk;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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