The Accrual Anomaly: International Evidence

Posted: 8 May 2006

See all articles by Morton Pincus

Morton Pincus

University of California, Irvine

Shivaram Rajgopal

Columbia Business School

Mohan Venkatachalam

Duke University - Fuqua School of Business

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We consider stock markets in 20 countries to investigate whether the accrual anomaly (Sloan 1996), characterized by U.S. stock prices overweighting the role of accrual persistence, is a local manifestation of a global phenomenon. We explore whether the occurrence of the anomaly is related to country differences in accounting and institutional structures, and examine alternative explanations for its occurrence. We find stock prices overweight accruals in general, with accruals overweighting occurring in countries with a common law relative to a code law tradition. Using firm-level data on a country-by-country basis, we document the occurrence of the anomaly in four countries - Australia, Canada, the U.K., and the U.S. - and also in a sample of ADRs of firms domiciled in countries where we do not detect the anomaly. Using country-level data, we confirm the anomaly is more likely to occur in countries having a common law tradition, and also in countries allowing extensive use of accrual accounting and having a lower concentration of share ownership. Additional analyses reveal that earnings management and barriers to arbitrage best explain the anomaly.

Keywords: accrual anomaly, operating cash flows, total and abnormal accruals, international accounting

JEL Classification: M41, M43, G12, G14, G15

Suggested Citation

Pincus, Morton P.K. and Rajgopal, Shivaram and Venkatachalam, Mohan, The Accrual Anomaly: International Evidence. Accounting Review, 2006, Available at SSRN:

Morton P.K. Pincus

University of California, Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States
949-824-4062 (Phone)
949-725-2812 (Fax)

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

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Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

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