High Accruals Momentum
Accounting and Finance, Forthcoming
49 Pages Posted: 7 Jun 2018 Last revised: 26 Oct 2022
Date Written: January 1, 2018
We examine the information content of high accruals momentum defined as a string of high discretionary accruals for four consecutive years. We find that firms that consistently report high levels of discretionary accruals experience low subsequent returns. The results are robust after we control for annual levels of discretionary accruals for the estimation period of high accruals momentum. Furthermore, the predictive power of the high accruals momentum for future returns is strongly persistent even after the existing accruals anomaly disappears. Our results also show that the high accruals momentum impact is more pronounced for low growth firms, suggesting that the overpricing of stocks with high accruals momentum is driven by managerial discretion to manage earnings.
Keywords: Discretionary accruals, high accruals momentum, earnings management, growth anomaly, earnings momentum
JEL Classification: G12, G14
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