The Persistence of the Accruals Anomaly*

Baruch Lev and Doron Nissim

Contemporary Accounting Research, 2006, vol. 23, issue 1, 193-226

Abstract: The accruals anomaly — the negative relationship between accounting accruals and subsequent stock returns — has been well documented in the academic and practitioner literatures for almost a decade. To the extent that this anomaly represents market inefficiency, one would expect sophisticated investors to learn about it and arbitrage the anomaly away. We show that the accruals anomaly still persists and, even more strikingly, its magnitude has not declined over time. How can this be explained? We show that the accruals anomaly is recognized and, indeed, exploited by certain active institutional investors, but the magnitude of this accruals†related trading is rather small. By and large, institutions shy away from extreme†accruals firms because their attributes, such as small size, low profitability, and high risk stand in stark contrast to those preferred by most institutions. Individual investors are also, by and large, unable to profit from trading on accruals information due to the high information and transaction costs associated with implementing a consistently profitable accruals strategy. Consequently, the accruals anomaly persists and will probably endure.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
https://doi.org/10.1506/C6WA-Y05N-0038-CXTB

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:wly:coacre:v:23:y:2006:i:1:p:193-226

Access Statistics for this article

More articles in Contemporary Accounting Research from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().