TY - JOUR
T1 - The accrual anomaly in Europe
T2 - The role of accounting distortions
AU - Papanastasopoulos, Georgios A.
AU - Tsiritakis, Emmanuel
PY - 2015/10/1
Y1 - 2015/10/1
N2 - Numerous studies claim that the accrual anomaly in the U.S. stock market is due mostly to temporary accounting distortions arising from accrual accounting. We examine the validity of this explanation in an international setting. Across the 15 developed European equity markets we examine, accounting distortions contribute to the negative relation between accruals and future earnings performance in 14 equity markets. Further, we show that the negative relation between accruals and stock returns could be at least attributable to accounting distortions. In particular, accruals related to accounting distortions predict returns in 7 out of the 9 markets where the accrual anomaly occurs in Europe. Finally, we show that the impact of accounting distortions on the pricing of the accrual component of earnings is stronger in markets with a higher level of trust and a lower level of secrecy.
AB - Numerous studies claim that the accrual anomaly in the U.S. stock market is due mostly to temporary accounting distortions arising from accrual accounting. We examine the validity of this explanation in an international setting. Across the 15 developed European equity markets we examine, accounting distortions contribute to the negative relation between accruals and future earnings performance in 14 equity markets. Further, we show that the negative relation between accruals and stock returns could be at least attributable to accounting distortions. In particular, accruals related to accounting distortions predict returns in 7 out of the 9 markets where the accrual anomaly occurs in Europe. Finally, we show that the impact of accounting distortions on the pricing of the accrual component of earnings is stronger in markets with a higher level of trust and a lower level of secrecy.
KW - Accounting accruals
KW - Accounting distortions
KW - Accrual anomaly
KW - International stock markets
KW - Trust
UR - http://www.scopus.com/inward/record.url?scp=84936880938&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2015.06.006
DO - 10.1016/j.irfa.2015.06.006
M3 - Article
AN - SCOPUS:84936880938
SN - 1057-5219
VL - 41
SP - 176
EP - 185
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
ER -