Restructuring Charges, FAS 146, and the Accrual Anomaly

Sanjeev Bhojraj (), Partha Sengupta () and Suning Zhang ()
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Sanjeev Bhojraj: Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853
Partha Sengupta: Enterprise Risk Analysis Division, Office of the Comptroller of the Currency, Washington, DC 20219
Suning Zhang: Henry B. Tippie College of Business, The University of Iowa, Iowa City, Iowa 52242

Management Science, 2017, vol. 63, issue 11, 3654-3671

Abstract: In this study, we examine the role of restructuring charges in the existence and subsequent weakening of the widely documented accrual anomaly. We find that prior to 2003, the significant positive abnormal hedge returns experienced by accrual based strategies were influenced by a subset of firms with high restructuring charges. After 2003, with the introduction of the Statement of Financial Accounting Standards No. 146 changing the accounting for restructuring charges, restructuring firms no longer experience significant abnormal returns, thereby weakening the accrual anomaly. Our results suggest that the regulatory changes have had an effect on impairing the role of restructuring charges in the accrual anomaly by improving the market’s ability to correctly assess the valuation implications of restructuring charges in the low accruals portfolios.

Keywords: restructuring charges; accrual anomaly; FAS 146 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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