Accrual anomaly in the Brazilian capital market

Abstract

This paper analyzes the phenomenon known as accrual anomaly in Brazil. In particular, we examine two hypotheses: (a) that the earnings expectation included in the stock price fails to reflect the difference in persistence of the earnings components (accruals and cash flows); and (b) that the construction of a hedge portfolio by taking a long (short) position in assets with low (high) accruals generates consistently abnormal returns. The data set includes nonfinancial firms listed on the BM&FBOVESPA between 1990 and 2008. The empirical tests required conducting panel data regressions to identify the persistence of earnings and their components; the Mishkin test to identify whether the market rationally prices earnings; and the composition of a zero-investment (hedge) portfolio to analyze whether a trading strategy based on accruals consistently provides abnormal positive returns. The results indicate that the accrual component is not mispriced by the Brazilian market, and that a trading strategy based on accruals does not provide consistently positive returns. Although this evidence does not encourage arbitrage, the results are relevant from various perspectives. The methodology applied permitted identifying the quality of earnings and of their components, as well as association between the components of earnings and returns.

Quarterly Earnings, Operating Cash Flow, and Accruals in Future Performance Assessment

“…Contrary to the bulk of international evidence, Takamatsu and Fávero (2013) and Cupertino, Martinez, and Costa (2012) document that the market agents correctly price the accrual component of earnings and that there is no accrual anomaly in the Brazilian market. Other studies analyze the relevance of annual earnings and cash flow to market agents.…”

Accruals mispricing versus risk: Analyzing the influence of external monitoring in Brazil

“…Empirical evidence on the accruals anomaly in the Brazilian market is still inconclusive. While some studies point to weak evidence or even no evidence at all (Cupertino et al., 2012; Silva Filho & Machado, 2013; Takamatsu & Fávero, 2013), more recent studies have presented results that suggest the existence of an accruals anomaly for firms listed on the Brazilian Stock Market (Moreira et al., 2019; Martins et al., 2019). However, considering the characteristics of an emerging economy like Brazil, we believe the evidence can become clearer by controlling for factors related to corporate governance.…”

“…Cupertino et al. (2012) analyzed the existence of the accruals anomaly in Brazil and found no evidence of the occurrence of such a phenomenon. In similar studies, Takamatsu and Fávero (2013) and Silva Filho and Machado (2013) concluded that no significant abnormal returns were achieved in an accrual‐based investment strategy, indicating that investors in Brazil were able to correctly interpret and price accounting data.…”

Relación entre indicadores económicos y precio de acciones en empresas brasileñas

“…La aceptación del valor razonable, por académicos y profesionales de la contabilidad, está justamente enmarcada en el paradigma de la utilidad para el decisor; elementos de los estados financieros comienzan a ser valorados a precios de mercado o actuales (Castellanos Sánchez, 2010;Da Silva Macedo, Reis Machado, Versa Machado y Cardoso Mendonça, 2013). La eficiencia de información en el mercado de capitales se torna en un factor relevante para apoyar las expectativas de los accionistas en relación con sus inversiones (Madeiros Cupertino, Affonso da Costa y Lopo Martinez, 2012;Tresman Zortea, Caio Galdi, Soares Monte-Mor y Beiruth, 2017).…”