Accruals and the performance of stock returns following external financing activities

Georgios Papanastasopoulos, Dimitrios Thomakos, Tao Wang

    Research output: Contribution to journalArticlepeer-review


    This paper investigates the relation of the external financing anomaly with the accrual anomaly, by focusing separately on working capital accruals and long-term accruals. We find that external financing and accrual hedge portfolios not only generate superior returns, but they also constitute statistical arbitrage opportunities. Portfolio-level analysis and firm-level cross-sectional regressions show that the ability of external financing measures in predicting future returns remains strong, after controlling for working capital accruals. However, this ability is substantially reduced after controlling for long-term accruals. Our results appear to be consistent with investors' failure to recognise agency-related overinvestment and/or opportunistic earnings management.

    Original languageEnglish
    Pages (from-to)214-229
    Number of pages16
    JournalBritish Accounting Review
    Issue number3
    Publication statusPublished - Sept 2011


    • Accruals
    • External financing activities
    • Stock returns


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