Have existing theories explained the accrual anomaly? An evaluation based on the decomposition method

Zhi‐an Hu, Zhuo Huang, Dawei Lin and Zhimin Qiu

Accounting and Finance, 2022, vol. 62, issue 3, 3645-3675

Abstract: Using the decomposition method proposed by Hou and Loh (2016), we evaluate whether the existing theories have explained the negative correlation between accruals and the cross‐section returns (the accrual anomaly). The results show that cash‐based operating profitability best explains the anomaly, with an explanatory power of about 94 percent. Among the three explanation groups, explanations about investment and cash flows explain efficiently, whereas the contributions of arbitrage costs and information asymmetry are quite limited. Together, our findings suggest that the existing theories, especially explanations about investment and cash flows, have explained most of the anomaly and the unexplained fraction is negligible.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/acfi.12900

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:bla:acctfi:v:62:y:2022:i:3:p:3645-3675

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0810-5391

Access Statistics for this article

Accounting and Finance is currently edited by Robert Faff

More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().