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: 29 Sep 2009

See all articles by William H. Beaver

William H. Beaver

Stanford University

Maureen F. McNichols

Stanford University

Richard A. Price

University of Oklahoma

Multiple version iconThere 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

Beaver, William H. and McNichols, Maureen F. and Price, Richard A., Delisting Returns and Their Effect on Accounting-Based Market Anomalies (November 27, 2006). Journal of Accounting and Economics, Vol. 43, pp. 341-368, 2007; 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

William H. Beaver

Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4409 (Phone)
650-725-6152 (Fax)

Maureen F. McNichols (Contact Author)

Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-0833 (Phone)
650-725-7979 (Fax)

Richard A. Price

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-5759 (Phone)

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