Accruals and Short Selling: An Opportunity Foregone?

36 Pages Posted: 20 Aug 2000

See all articles by Scott A. Richardson

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Date Written: June 2000


Existing research indicates that firms with high accruals are more likely to experience earnings reversals and lower returns in the future. It has further been shown that analysts and auditors do not anticipate these consequences. In this paper, I examine a sophisticated set of investors (short sellers) to see whether they anticipate the consequences of high accruals. Unlike analysts and auditors, short sellers have particularly strong incentives to understand the accrual anomaly since they can directly profit from the lower firm performance of high accrual firms. I find that short sellers utilize information contained in fundamental ratios like market-to-book. However, I do not find systematic evidence that short sellers trade on the basis of information contained in accruals.

Keywords: Accruals, Returns, Short sellers

JEL Classification: G11, G14, G29, M41

Suggested Citation

Richardson, Scott Anthony, Accruals and Short Selling: An Opportunity Foregone? (June 2000). EFMA Athens Working Paper. Available at SSRN: or

Scott Anthony Richardson (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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