Abstract

http://ssrn.com/abstract=10604
 


 



Accounting Accruals and Future Stock Returns: The Effects of Lagged Information Uptake


Wonsun D. Paek


Sungkyunkwan University

June 1997


Abstract:     
This study examines the lagged association between current years' stock returns and prior years' discretionary accruals in the presence of firms' other economic information. I document that the lagged association is significant beyond the contemporaneous relation. This result confirms evidence in the post-earnings-announcement drift literature that the stock market responds to accounting earnings in a delayed fashion. However, the distinction between this study and the post-earnings-announcement drift literature is that the significance of the lagged association between year t's stock returns and year t-1's discretionary accruals is not a manifestation of stock market participants misinterpreting the time series implications of previous earnings for future earnings. Further, the lagged association remains significant even after controlling for year t-1's and t-2's stock returns, and information provided by lagged discretionary accruals is not superseded by economic factors such as leverage, market-to-book ratio, and the security beta. If the lagged association is not the response to the direct valuation implications of lagged accruals, but is a consequence of misspecified models or omitted variables, its significance should disappear when lagged stock returns or economic factors are controlled. In fact, this is not so, suggesting that information in discretionary accruals is more likely to be uniquely value relevant, and it is underutilized and more thoroughly impounded in a subsequent period.

JEL Classification: G14, M41

working papers series


Not Available For Download

Date posted: August 4, 1997  

Suggested Citation

Paek, Wonsun D., Accounting Accruals and Future Stock Returns: The Effects of Lagged Information Uptake (June 1997). Available at SSRN: http://ssrn.com/abstract=10604

Contact Information

Wonsun D. Paek (Contact Author)
Sungkyunkwan University ( email )
3-53, Myungnyun-dong
Seoul 110-745
Korea
+82-2-760-0415 (Phone)
+82-2-745-4566 (Fax)
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