The Accrual Anomaly: Australian Evidence

18 Pages Posted: 21 Apr 2012

See all articles by Greg Clinch

Greg Clinch

Independent

Damian Fuller

Pricewaterhousecoopers, Australia

Brett J. Govendir

University of Technology Sydney (UTS); Financial Research Network (FIRN)

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2012

Abstract

This paper investigates whether there is evidence of the accrual anomaly (Sloan, 1996) in Australia, whereby investors overestimate the impact of accruals on the persistence of earnings. While our results provide general support for the existence of the anomaly in Australia, there are a number of idiosyncrasies. First, there is evidence of Australian investors underestimating the persistence of earnings. Second, there is evidence of investors incorrectly assessing the implications of accruals and cash flows for the persistence of earnings (i.e. an accrual anomaly and a cash‐flow anomaly). Third, returns to a hedged portfolio trading strategy based on reported accruals are decreasing over the three‐year period subsequent to portfolio formation. Furthermore, they are statistically significant only in the first year. Additional analysis of the hedge portfolio results indicates that these results are primarily attributable to a limited number of firm‐year observations in the extreme positive tail of returns.

Keywords: Financial reporting, Accrual anomaly

JEL Classification: M41, G11

Suggested Citation

Clinch, Greg and Fuller, Damian and Govendir, Brett J. and Wells, Peter Alfred, The Accrual Anomaly: Australian Evidence (June 2012). Accounting & Finance, Vol. 52, Issue 2, pp. 377-394, 2012. Available at SSRN: https://ssrn.com/abstract=2042880 or http://dx.doi.org/10.1111/j.1467-629X.2010.00380.x

Greg Clinch

Independent

No Address Available

Damian Fuller

Pricewaterhousecoopers, Australia ( email )

Sydney NSW 2000
Australia

Brett J. Govendir

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia
+61 2 95143582 (Phone)

HOME PAGE: http://www.business.uts.edu.au/

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ( email )

P.O. Box 123
Broadway NSW 2007
Australia
+61 (02) 9514 3628 / 3629 (Phone)
+61 (02) 9514 5515 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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