Delisting Returns and Their Effect on Accounting-Based Market Anomalies

Beaver, William H.; McNichols, Maureen F.; Price, Richard A.

doi:10.2139/ssrn.949601

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Delisting Returns and Their Effect on Accounting-Based Market Anomalies

Rock Center for Corporate Governance Working Paper No. 18

Journal of Accounting and Economics, Vol. 43, pp. 341-368, 2007

46 Pages Posted: 7 Dec 2006 Last revised: 17 Feb 2009

See all articles by William H. Beaver

Richard A. Price

University of Oklahoma

There are 2 versions of this paper

Date Written: November 27, 2006

Abstract

We show that tests of market efficiency are sensitive to the inclusion of delisting firm-years. When included, trading strategy returns based on anomaly variables can increase (for strategies based on earnings, cash flows and the book-to-market ratio) or decrease (for a strategy based on accruals). This is due to the disproportionate number of delisting firm-years in the lowest decile of these variables. Delisting firm-years are most often excluded because the researcher does not correctly incorporate delisting returns, because delisting return data are missing or because other research design choices implicitly exclude them.

Keywords: Delisting Returns, Anomalies, Market Efficiency, Accrual Anomaly, Trading Strategy

JEL Classification: G14, M41, G33, G34

Suggested Citation: Suggested Citation

Beaver, William H. and McNichols, Maureen F. and Price, Richard A., Delisting Returns and Their Effect on Accounting-Based Market Anomalies (November 27, 2006). Rock Center for Corporate Governance Working Paper No. 18
, Journal of Accounting and Economics, Vol. 43, pp. 341-368, 2007, Available at SSRN: https://ssrn.com/abstract=949601 or http://dx.doi.org/10.2139/ssrn.949601