Asymmetrically Timely Loss Recognition and the Accrual Anomaly

Abacus, March 2016

18 Pages Posted: 2 Sep 2015 Last revised: 27 Jun 2016

Date Written: August 31, 2015


Conditionally conservative accounting practices mandate the more timely recognition of losses relative to gains through transitory negative accrual items. A direct implication of asymmetrically timely loss recognition is asymmetry in the persistence of accruals depending on whether the firm experiences a gain or a loss in the current year: accruals should be less persistent for loss years relative to profit years. If investors naively fixate on total earnings, however, conditional conservatism would imply that investors will tend to overestimate the persistence of accruals especially in loss years. Consistent with naïve earnings fixation, I find that Sloan’s (1996) accrual anomaly, i.e., the negative association between accruals and future abnormal stock returns, is more pronounced for loss firms relative to profit firms. The evidence is relevant for understanding the origins of the accrual anomaly and highlights that inferences with respect to the pricing of accruals can be affected by pooling loss firms with profit firms.

Keywords: accrual anomaly, earnings persistence, conditional conservatism, earnings fixation

JEL Classification: G10, M41

Suggested Citation

Patatoukas, Panos N., Asymmetrically Timely Loss Recognition and the Accrual Anomaly (August 31, 2015). Abacus, March 2016, Available at SSRN: or

Panos N. Patatoukas (Contact Author)

Berkeley Haas ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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