Abstract

http://ssrn.com/abstract=1985743
 


 



Conservatism, Accrual Persistence Asymmetry, and Stock Returns


Gulraze Wakil


Carleton University-Sprott School of Business

Pervaiz Alam


Kent State University

May 26, 2014

CAAA Annual Conference 2012
2014 Canadian Academic Accounting Association (CAAA) Annual Conference

Abstract:     
This paper investigates accounting conservatism’s effects on accrual persistence and accrual-related future stock returns. We find conservatism significantly increases accrual persistence and accrual-related future stock returns and more so in high accrual firms. We attribute this to conservatism’s reliability and verifiability requirements. However, the effect is statistically insignificant using only low accrual firms. Therefore, conservatism’s effects on accruals depend on their magnitude, i.e., asymmetrically. Moreover, increases in persistence and stock returns related to conservatism in high accrual firms also exists in recent years during which prior literature has shown the accruals anomaly to have diminished to insignificant levels. Our paper will be of interest to investors because markets do not fully capture how accounting conservatism affects accruals and also to auditors, lenders, and standard setters since collectively our paper finds accounting conservatism to be a positive trait for financial reporting.

Number of Pages in PDF File: 42

Keywords: accruals anomaly, accounting conservatism, market inefficiency, persistence asymmetry

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Date posted: January 16, 2012 ; Last revised: June 12, 2014

Suggested Citation

Wakil, Gulraze and Alam, Pervaiz, Conservatism, Accrual Persistence Asymmetry, and Stock Returns (May 26, 2014). CAAA Annual Conference 2012; 2014 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: http://ssrn.com/abstract=1985743 or http://dx.doi.org/10.2139/ssrn.1985743

Contact Information

Gulraze Wakil (Contact Author)
Carleton University-Sprott School of Business ( email )
1125 Colonel By Drive
Ottawa, Ontario K1S SB6
Canada
613-520-2600 (Phone)
Pervaiz Alam
Kent State University ( email )
P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1121 (Phone)
330-672-2548 (Fax)
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