The accrual anomaly in Europe: The role of accounting distortions

Georgios A. Papanastasopoulos and Emmanuel Tsiritakis

International Review of Financial Analysis, 2015, vol. 41, issue C, 176-185

Abstract: Numerous studies claim that the accrual anomaly in the U.S. stock market is due mostly to temporary accounting distortions arising from accrual accounting. We examine the validity of this explanation in an international setting. Across the 15 developed European equity markets we examine, accounting distortions contribute to the negative relation between accruals and future earnings performance in 14 equity markets. Further, we show that the negative relation between accruals and stock returns could be at least attributable to accounting distortions. In particular, accruals related to accounting distortions predict returns in 7 out of the 9 markets where the accrual anomaly occurs in Europe. Finally, we show that the impact of accounting distortions on the pricing of the accrual component of earnings is stronger in markets with a higher level of trust and a lower level of secrecy.

Keywords: Accounting accruals; Accounting distortions; Accrual anomaly; International stock markets; Trust (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105752191500126X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:41:y:2015:i:c:p:176-185

DOI: 10.1016/j.irfa.2015.06.006

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().