The Market Mispricing of Special Items and Accruals: One Anomaly or Two?
41 Pages Posted: 5 Jun 2005
Date Written: June 2, 2005
We investigate whether the special items anomaly documented by Burgstahler, Jiambalvo and Shevlin (2002) is distinct from the accruals anomaly initially documented by Sloan (1996). We demonstrate that Burgstahler et al.'s special items anomaly, in essence, represents the market overpricing of special items and thus it shares the same form of market mispricing as the accruals anomaly. Moreover, we find that accruals and special items are strongly positively related. Various tests suggest that special items overpricing, to a large extent, depends on accruals overpricing and that the overpricing of special items is subsumed by the overpricing of accruals. However, we also find that special items affect the extent to which the market overprices accruals with negative special items aggravating and positive special items alleviating accruals overpricing.
Keywords: accruals, special items, mispricing, market anomalies
JEL Classification: G14, M41, M43
Suggested Citation: Suggested Citation