Accruals and future performance: Can it be attributed to risk?

Francesco Momente’ (), Francesco Reggiani () and Scott Richardson ()
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Francesco Momente’: Bocconi University
Francesco Reggiani: Bocconi University
Scott Richardson: AQR Capital Management LLC

Review of Accounting Studies, 2015, vol. 20, issue 4, No 3, 1297-1333

Abstract: Abstract We decompose broad-based measures of accruals into firm-specific and related-firm components. We find that the negative relation between accruals and future firm performance is almost entirely attributable to the firm-specific component. Standard risk-based explanations are hard to reconcile with this fact. To the extent expected returns have a common component spanning related firms, a risk-based explanation would suggest a stronger negative relation between accruals and future firm performance when related firms are also growing. Instead, the attenuation we document is more likely attributable to suboptimal investment decisions, which the stock market and analysts do not incorporate in a timely manner.

Keywords: Investment activity; Accruals; Profitability; Stock returns; Supply chain (search for similar items in EconPapers)
JEL-codes: G12 G14 M41 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11142-015-9319-x

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