The Accrual Anomaly in the U.K. Stock Market: Implications of Growth and Accounting Distortions

Posted: 3 Jul 2014 Last revised: 29 Nov 2016

See all articles by Leonidas C. Doukakis

Leonidas C. Doukakis

University of Lausanne, HEC

George A. Papanastasopoulos

University of Piraeus - Department of Business Administration

Date Written: July 3, 2014

Abstract

On the basis of an accrual decomposition into two components capturing output growth and accounting distortions, this paper analyzes the effects of accounting accruals on firms’ future performance in the U.K. stock market. Findings reveal a strong negative association of accruals with future profitability and stock returns. The effect of accruals on future earnings performance is driven only by the component attributable to accounting distortions, and the accrual effect on stock price performance is driven by both the component attributable to accounting distortions and the component attributable to growth. These two components complement each other in driving the accrual effect on stock returns.

Keywords: accruals, growth, accounting distortions, profitability, stock returns

JEL Classification: M41

Suggested Citation

Doukakis, Leonidas C. and Papanastasopoulos, George A., The Accrual Anomaly in the U.K. Stock Market: Implications of Growth and Accounting Distortions (July 3, 2014). Journal of International Financial Markets, Institutions and Money, Vol. 32, pp. 256–277, 2014 . Available at SSRN: https://ssrn.com/abstract=2461988

Leonidas C. Doukakis

University of Lausanne, HEC ( email )

Unil Chamberonne, Batiment Anthropole
Lausanne, 1015
Switzerland

George A. Papanastasopoulos (Contact Author)

University of Piraeus - Department of Business Administration ( email )

80, KARAOLI & DIMITRIOU,PIRAEUS
Piraeus, 18534
Greece

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