The accrual anomaly in the U.K. stock market: Implications of growth and accounting distortions

Leonidas C. Doukakis and Georgios A. Papanastasopoulos

Journal of International Financial Markets, Institutions and Money, 2014, vol. 32, issue C, 256-277

Abstract: On the basis of an accrual decomposition into two components capturing output growth and accounting distortions, this paper analyzes the effects of accounting accruals on firms’ future performance in the U.K. stock market. Findings reveal a strong negative association of accruals with future profitability and stock returns. The effect of accruals on future earnings performance is driven only by the component attributable to accounting distortions, and the accrual effect on stock price performance is driven by both the component attributable to accounting distortions and the component attributable to growth. These two components complement each other in driving the accrual effect on stock returns.

Keywords: Accruals; Growth; Accounting distortions; Profitability; Stock returns (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:32:y:2014:i:c:p:256-277

DOI: 10.1016/j.intfin.2014.06.006

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