Accruals and Short Selling: An Opportunity Foregone?
36 Pages Posted: 20 Aug 2000
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: Suggested Citation