Connecting the Dots: The Accruals Quality Premium vs. The Value Premium

Managerial Finance, Vol 38 (12), p.1106-1133

34 Pages Posted: 27 Apr 2010 Last revised: 9 Aug 2014

See all articles by Doina Chichernea

Doina Chichernea

University of Denver - Reiman School of Finance

Anthony Dewayne Holder

University of Denver

Jie (Diana) Wei

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

Date Written: February 12, 2012

Abstract

Two separate strands in the existing literature document that (1) the value premium may be the reward for risk generated by disagreement between investors with heterogeneous beliefs about future stock payoffs (Doukas et. al. 2002, 2004), and that (2) poor quality of accounting information is an important determinant of such disagreement (Lobo et. al. 2006). We investigate the connection between the accrual quality and the growth/value characteristics at firm level and whether there is any connection between the value premium and the accrual quality premium. This study provides evidence that value stocks are more likely to have high accrual quality, while growth stocks are more likely to have poor quality accruals. While the two premia are strongly connected during down markets, accrual quality does not seem to be the source that generates the higher dispersion of beliefs that value firms are documented to have. On the contrary, our results imply that value firms mitigate the quality of their information environment by providing better quality accounting information relative to growth firms.

JEL Classification: M41

Suggested Citation

Chichernea, Doina and Holder, Anthony Dewayne and Wei, Jie (Diana), Connecting the Dots: The Accruals Quality Premium vs. The Value Premium (February 12, 2012). Managerial Finance, Vol 38 (12), p.1106-1133. Available at SSRN: https://ssrn.com/abstract=1596362 or http://dx.doi.org/10.2139/ssrn.1596362

Doina Chichernea

University of Denver - Reiman School of Finance ( email )

2101 S. University Blvd
Denver, CO 80208
United States

Anthony Dewayne Holder (Contact Author)

University of Denver ( email )

2101 S. University Blvd. Suite 375
Denver, CO 80208
United States
3038712028 (Phone)

Jie (Diana) Wei

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

400 7th Street SW
Washington, DC 20219
United States

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