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Author: Paul Hribar
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This paper examines the circumstances under which a growth explanation or a persistence explanation is a more likely explanation for accrual mispricing and whether accruals or cash from operations is a better measure of the mispricing. We hypothesize that mispricing of growth and a fixation on earnings are both descriptive of the accrual mispricing, but that they affect prices differently depending on where the firm is in its life cycle. We also hypothesize that the mispricing will have a stronger association with accruals or cash flows depending on which explanation drives the mispricing. Our results show that the orthogonal information in accruals is more related to growth characteristics, while the orthogonal information in cash flows is related to earnings persistence. Furthermore, in the growth stage, information in accruals is mispriced to a greater extent than the information in cash flows. Collectively, our results suggest that the investment-based explanation for accrual mispricing dominates in the growth stage and is best measured using accruals (and not operating cash flows). In contrast, the persistence explanation for accrual mispricing is more descriptively valid at maturity and decline, and the information contained in operating cash flows subsumes the information contained in accruals regarding earnings persistence.
Author: Paul Hribar
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This paper examines the circumstances under which a growth explanation or a persistence explanation is a more likely explanation for accrual mispricing and whether accruals or cash from operations is a better measure of the mispricing. We hypothesize that mispricing of growth and a fixation on earnings are both descriptive of the accrual mispricing, but that they affect prices differently depending on where the firm is in its life cycle. We also hypothesize that the mispricing will have a stronger association with accruals or cash flows depending on which explanation drives the mispricing. Our results show that the orthogonal information in accruals is more related to growth characteristics, while the orthogonal information in cash flows is related to earnings persistence. Furthermore, in the growth stage, information in accruals is mispriced to a greater extent than the information in cash flows. Collectively, our results suggest that the investment-based explanation for accrual mispricing dominates in the growth stage and is best measured using accruals (and not operating cash flows). In contrast, the persistence explanation for accrual mispricing is more descriptively valid at maturity and decline, and the information contained in operating cash flows subsumes the information contained in accruals regarding earnings persistence.
Author: Patricia M. Fairfield
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
An important goal of accounting research is to provide evidence that improves the analysis of financial statements for predicting future profitability. Research (Sloan 1996; Xie 2001) has found that (1) the persistence of earnings performance depends on the proportions of the cash and accrual components and that (2) a market inefficiency results from the failure of investors to fully appreciate the implications of cash flows and accruals for future earnings performance. In this study we investigate whether these results with respect to accruals can be generalized to another form of growth in net operating assets. We find that growth in long-term net operating assets, like accruals, has a negative association with one-year-ahead return on assets. We also find that the negative associations of both forms of growth (accruals and growth in long-term net operating assets) to one-year-ahead return on assets are attributable to the effect of growth on the denominator of return on assets. Furthermore, we find that the apparent market mispricing of accruals applies to growth in long-term net operating assets and that the severity of the mispricing does not significantly differ between the components of growth. Thus, the results suggest that the accrual anomaly documented in Sloan (1996) is a subset of a larger anomaly with respect to a general market mispricing of growth in net operating assets. Statement Analysis, Market Mispricing.
Author: Xiumin Martin
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This paper investigates two competing arguments for the lower persistence of accruals in an inter-temporal setting and their implications for accrual anomaly. The accounting distortions argument predicts a lower persistence of both accruals and growth in long-term net operating assets during periods of expansion than during recession. If investors fixate on earnings, then it predicts more mispricing of both accruals and growth in long-term net operating assets during expansionary periods relative to recessionary periods. In contrast, the growth argument predicts a lower persistence of accruals, but a higher persistence of growth in long-term net operating assets during expansions than during recessions. If investors are unable to access the effect of growth on future profitability, it predicts more (less) accrual (growth in long-term net operating assets) mispricing. Using a U.S. sample from 1972 to 2003, I find evidence consistent with the growth argument that during periods of expansion, the persistence of accruals is lower, but the persistence of growth in long-term net operating assets is higher. Additionally I find that the accrual mispricing is more pronounced, but the mispricing of growth in long-term net operating assets is less pronounced during periods of expansion.
Author: Robert James Resutek
Publisher:
ISBN:
Category : Accrual basis accounting
Languages : en
Pages : 156
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Book Description
This dissertation reexamines the theoretical and empirical relation between future period returns and current period accruals. Prior studies find a negative relation between current period accruals and future returns. This finding (the accrual anomaly) is often attributed to either (a) investors mispricing accrual persistence or (b) investors mispricing the growth information contained in current accruals. In this study, I show that accruals are a natural manifestation of firm growth and contraction and that the information contained in accruals is not associated with future returns. This finding holds for multiple accrual definitions and decompositions. My study provides an alternative explanation for the accrual anomaly. In addition, I provide economic intuition and empirical evidence suggesting that the accrual anomaly is a function of the value/growth anomaly. In contrast to prior studies which use a two-period model to show the negative association between accruals in period one and returns in period two, I employ a three period log-linear model decomposed from a firm's book-to-market ratio and show that investors do not misprice the information contained in accruals. My study shows that in the four year period prior to accrual recognition, equity prices tend to be driven disproportionately by intangible returns, or returns not explained by accounting measures. Accordingly, the relation between prior-period intangible returns and future-period returns may subsume the relation between current-period accruals and future returns. Empirical tests support this explanation.
Author: Frederic S. Mishkin
Publisher: University of Chicago Press
ISBN: 0226531929
Category : Business & Economics
Languages : en
Pages : 184
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Book Description
A Rational Expectations Approach to Macroeconometrics pursues a rational expectations approach to the estimation of a class of models widely discussed in the macroeconomics and finance literature: those which emphasize the effects from unanticipated, rather than anticipated, movements in variables. In this volume, Fredrick S. Mishkin first theoretically develops and discusses a unified econometric treatment of these models and then shows how to estimate them with an annotated computer program.
Author: Sue Joy Wright
Publisher:
ISBN: 9780170261951
Category : Business enterprises
Languages : en
Pages : 720
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Book Description
Business Analysis and Valuation has been developed specifically for students undertaking accounting Valuation subjects. With a significant number of case studies exploring various issues in this field, including a running chapter example, it offers a practical and in-depth approach. This second edition of the Palepu text has been revitalised with all new Australian content in parts 1-3, making this edition predominantly local, while still retaining a selection of the much admired and rigorous Harvard case studies in part 4. Retaining the same author team, this new edition presents the field of valuation accounting in the Australian context in a clear, logical and thorough manner.
Author: Joshua Ronen
Publisher: Springer Science & Business Media
ISBN: 0387257713
Category : Business & Economics
Languages : en
Pages : 587
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Book Description
This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
Author: Stephen Penman
Publisher: Columbia University Press
ISBN: 0231521855
Category : Business & Economics
Languages : en
Pages : 265
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Book Description
Accounting for Value teaches investors and analysts how to handle accounting in evaluating equity investments. The book's novel approach shows that valuation and accounting are much the same: valuation is actually a matter of accounting for value. Laying aside many of the tools of modern finance the cost-of-capital, the CAPM, and discounted cash flow analysis Stephen Penman returns to the common-sense principles that have long guided fundamental investing: price is what you pay but value is what you get; the risk in investing is the risk of paying too much; anchor on what you know rather than speculation; and beware of paying too much for speculative growth. Penman puts these ideas in touch with the quantification supplied by accounting, producing practical tools for the intelligent investor. Accounting for value provides protection from paying too much for a stock and clues the investor in to the likely return from buying growth. Strikingly, the analysis finesses the need to calculate a "cost-of-capital," which often frustrates the application of modern valuation techniques. Accounting for value recasts "value" versus "growth" investing and explains such curiosities as why earnings-to-price and book-to-price ratios predict stock returns. By the end of the book, Penman has the intelligent investor thinking like an intelligent accountant, better equipped to handle the bubbles and crashes of our time. For accounting regulators, Penman also prescribes a formula for intelligent accounting reform, engaging with such controversial issues as fair value accounting.
Author: Leonard Zacks
Publisher: John Wiley & Sons
ISBN: 1118127765
Category : Business & Economics
Languages : en
Pages : 352
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Book Description
Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
Author: Melumad Nahum
Publisher: Now Publishers Inc
ISBN: 1601982127
Category : Business & Economics
Languages : en
Pages : 159
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Book Description
Line-Item Analysis of Earnings Quality provides a comprehensive summary and analysis of the specific earnings quality issues pertaining to key line item components of the financial statements. After providing an overview of earnings quality and earnings management, Line-Item Analysis of Earnings Quality analyzes key line items from the financial statements. For each key line item, the authors: review accounting principles; discuss implications for earnings quality; evaluate the susceptibility of the item to manipulation; describe analyses and red flags which may inform on the item's quality. Line-Item Analysis of Earnings Quality will prove useful in conducting fundamental and contextual analyses through its analysis and evaluations.
