ABSTRACT: Prior studies employ a two-period empirical model and interpret the negative association between accruals in period one and returns in period two as evidence that investors misprice the information contained in accruals. In contrast to prior studies, I employ a three-period log-linear model decomposed from a firm’s book-to-market ratio and show that investors do not misprice the information contained in accruals. My study shows that in the four-year period prior to accrual recognition, equity prices tend to be driven disproportionately by intangible returns, or returns not explained by accounting measures. Accordingly, the relation between prior period intangible returns and future period returns subsumes the relation between current period accruals and future returns. In addition, I link the accrual anomaly and the value/growth anomaly to a common economic mechanism (intangible returns) and show that a strong negative relation between external financing activities and future returns is not subsumed by the accrual anomaly.
Skip Nav Destination
Article navigation
1 July 2010
Research Article|
July 01 2010
Intangible Returns, Accruals, and Return Reversal: A Multiperiod Examination of the Accrual Anomaly
Robert J. Resutek
Robert J. Resutek
Dartmouth College
Search for other works by this author on:
Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2010
The Accounting Review (2010) 85 (4): 1347–1374.
Citation
Robert J. Resutek; Intangible Returns, Accruals, and Return Reversal: A Multiperiod Examination of the Accrual Anomaly. The Accounting Review 1 July 2010; 85 (4): 1347–1374. https://doi.org/10.2308/accr.2010.85.4.1347
Download citation file:
Pay-Per-View Access
$25.00