Settings Where the Accruals Anomaly Lives on

Abstract

We examine settings where annual returns to exploiting the accruals anomaly persist and settings where those returns have vanished. The accruals anomaly persists in neglected firms, that is, in firms that are less prominent and receive less investor attention, and where the specific calculation of accruals is less familiar to market participants. The accruals anomaly has vanished in settings where (1) public knowledge of the accruals anomaly, including the calculation of accruals, has increased, and (2) firms have received more investor attention. Our paper emphasizes the roles of investor knowledge and attention in market efficiency.

Keywords: accruals anomaly, market efficiency, abnormal returns

JEL Classification: m41, g14