Restructuring Charges, FAS 146, and the Accrual Anomaly

39 Pages Posted: 4 Jun 2009 Last revised: 22 May 2019

See all articles by Sanjeev Bhojraj

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management

Partha Sengupta

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Suning Zhang

Iowa State University - Debbie and Jerry Ivy College of Business

Date Written: September 6, 2016

Abstract

In this study, we examine the role of restructuring charges in the existence and subsequent weakening of the widely documented accrual anomaly. We find that prior to 2003 the significant positive abnormal hedge returns experienced by accrual based strategies were influenced by a subset of firms with high restructuring charges. After 2003, with the introduction of the Statement of Financial Accounting Standards No. 146 changing the accounting for restructuring charges, restructuring firms no longer experience significant abnormal returns thereby weakening the accrual anomaly. Our results suggest that the regulatory changes have had an effect on impairing the role of restructuring charges in the accrual anomaly by improving the market's ability to correctly assess the valuation implications of restructuring charges in the low accruals portfolios.

Keywords: restructuring charges, accrual anomaly, FAS 146.

JEL Classification: G10, G11, G38, M41, M43, M44

Suggested Citation

Bhojraj, Sanjeev and Sengupta, Partha and Zhang, Suning, Restructuring Charges, FAS 146, and the Accrual Anomaly (September 6, 2016). Management Science, Forthcoming . Available at SSRN: https://ssrn.com/abstract=1413210 or http://dx.doi.org/10.2139/ssrn.1413210

Sanjeev Bhojraj (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Accounting
Ithaca, NY 14853
United States
607-255-4069 (Phone)
607-254-4590 (Fax)

Partha Sengupta

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Mail Stop 6E-3
Washington, DC 20219-0001
United States
202-679-5525 (Phone)

Suning Zhang

Iowa State University - Debbie and Jerry Ivy College of Business ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

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