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Can the Earnings Fixation Hypothesis Explain the Accrual Anomaly?Linna ShiState University of New York at Binghamton - School of Management Huai ZhangNanyang Technological University (NTU) December 15, 2010 Review of Accounting Studies, Vol. 17, Issue 1, 1-21, 2012 Abstract: This paper provides empirical evidence on whether the earnings fixation hypothesis can explain the accrual anomaly originally documented in Sloan (1996). Our analytical model yields the prediction that if investors fixate on reported earnings, the effectiveness of the accrual strategy will increase in the responsiveness of the stock price to earnings and the differential persistence of cash flows relative to accruals. Our empirical evidence confirms our prediction and lends support to the earnings fixation hypothesis.
Number of Pages in PDF File: 32 Keywords: Accrual anomaly, Earnings fixation hypothesis, Responsiveness of stock price to earnings, Persistence of cash flows and accruals JEL Classification: G12, M41 Accepted Paper SeriesDate posted: February 28, 2007 ; Last revised: January 7, 2013Suggested CitationContact Information
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