Going, Going, Gone? The Demise of the Accruals Anomaly

Management Science, May 2011, vol. 57, no. 5, 797-816

41 Pages Posted: 19 Dec 2009 Last revised: 17 Jan 2013

See all articles by Jeremiah Green

Jeremiah Green

Texas A&M University - Department of Accounting

John R. M. Hand

University of North Carolina Kenan-Flagler Business School

Mark T. Soliman

University of Southern California - Marshall School of Business

Date Written: November 2, 2009

Abstract

Consistent with public statements made by sophisticated practitioners, we show that the hedge returns to Sloan's (1996) accruals anomaly have decayed in U.S. markets to the point that they are no longer positive. While we cannot unambiguously identify the causal factor or factors involved, our empirical analyses suggest that the anomaly's demise stems at least in part from a decline in the size of the mispricing signal (as measured by accruals in the extreme accruals deciles and the relative persistence of cash flows and accruals) and an increase in the capital invested by hedge funds into exploiting the signal (as measured by hedge fund assets under management and trading volume in extreme accrual decile firms). In light of the roles played by academic accountants in discovering and exploiting the accruals anomaly, we conclude that accounting scholarship can causally affect, not just associatively study, capital market prices and efficiency.

Keywords: Accruals anomaly, market efficiency, hedge funds, accounting scholarship

JEL Classification: M41

Suggested Citation

Green, Jeremiah and Hand, John R. M. and Soliman, Mark T., Going, Going, Gone? The Demise of the Accruals Anomaly (November 2, 2009). Management Science, May 2011, vol. 57, no. 5, 797-816. Available at SSRN: https://ssrn.com/abstract=1501020 or http://dx.doi.org/10.2139/ssrn.1501020

Jeremiah Green

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

John R. M. Hand (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3173 (Phone)
919-962-4727 (Fax)

Mark T. Soliman

University of Southern California - Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,028
Abstract Views
3,935
rank
21,297
PlumX Metrics