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Financial distress and the accrual anomaly

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  • Nguyen, Hang Thu
  • Alphonse, Pascal
  • Nguyen, Hiep Manh

Abstract

We find that the accrual anomaly is concentrated in healthy firms and is absent in financially distressed firms. The differential persistence between accruals and cash flows is the main driver of the relationship. Prior studies propose two explanations for the accrual anomaly: (1) accounting distortions of accruals and (2) investment mispricing. Our empirical evidence supports the former and challenges the latter. Our findings also disagree with the idea that the accrual anomaly is distress risk premium in disguise.

Suggested Citation

  • Nguyen, Hang Thu & Alphonse, Pascal & Nguyen, Hiep Manh, 2022. "Financial distress and the accrual anomaly," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    • Handle: RePEc:eee:jocaae:v:18:y:2022:i:3:s1815566922000145
    DOI: 10.1016/j.jcae.2022.100319
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    References listed on IDEAS

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    Cited by:

    1. Hu, Shuya & Wang, Shengnian, 2024. "Does air pollution affect the accrual anomaly in the Chinese capital market? From the perspective of investment adjustment strategy," Research in International Business and Finance, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Accrual anomaly; Financial distress; Differential persistence; Investment; Financial reporting;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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