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Financial distress and the accrual anomaly

Author

Listed:
  • Hang Thu Nguyen
  • Pascal Alphonse

    (LUMEN - Lille University Management Lab - ULR 4999 - Université de Lille)

  • Hiep Manh Nguyen

    (ESCP-EAP - ESCP-EAP - Ecole Supérieure de Commerce de Paris)

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

  • Hang Thu Nguyen & Pascal Alphonse & Hiep Manh Nguyen, 2022. "Financial distress and the accrual anomaly," Post-Print hal-04138201, HAL.
    • Handle: RePEc:hal:journl:hal-04138201
    DOI: 10.1016/j.jcae.2022.100319
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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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