The accrual anomaly in the U.K. stock market: Implications of growth and accounting distortions

Leonidas C. Doukakis, Georgios A. Papanastasopoulos

    Research output: Contribution to journalArticlepeer-review

    Abstract

    On the basis of an accrual decomposition into two components capturing output growth and accounting distortions, this paper analyzes the effects of accounting accruals on firms' future performance in the U.K. stock market. Findings reveal a strong negative association of accruals with future profitability and stock returns. The effect of accruals on future earnings performance is driven only by the component attributable to accounting distortions, and the accrual effect on stock price performance is driven by both the component attributable to accounting distortions and the component attributable to growth. These two components complement each other in driving the accrual effect on stock returns.

    Original languageEnglish
    Pages (from-to)256-277
    Number of pages22
    JournalJournal of International Financial Markets, Institutions and Money
    Volume32
    Issue number1
    DOIs
    Publication statusPublished - 2014

    Keywords

    • Accounting distortions
    • Accruals
    • Growth
    • Profitability
    • Stock returns

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