Accrual or Cash Flow Anomaly? Evidence from New Zealand

Abstract

This paper investigates the presence of the accrual and the cash flow anomalies in the New Zealand stock market for the period of 1987 to 2003. We observe insignificant evidence of the accrual anomaly but find strong evidence of the presence of the cash flow anomaly. However, from 1987 to 1992 – a period before the introduction of the Companies and the Financial Reporting Acts 1993 – the presence of the accrual anomaly was statistically significant suggesting that the introduction of the FRA had a significant impact on the occurrence of the anomaly. We observe further that firms with high discretionary accruals experience significant negative future stock returns. This evidence is consistent with the notion that managers of these firms engage in earnings management.

The accrual anomaly: Evidence from Borsa Istanbul

“…On the other hand, Leippold and Lohre (2012) demonstrate the existence of the accrual anomaly in both common law (Australia, Canada, Hong Kong, Ireland, Thailand, the U.K., the U.S.) and code law countries (Denmark, France, Germany, Italy, Japan, and Switzerland). There are also studies examining whether the accruals anomaly appears in developed and developing countries (Clinch, Fuller, Govendir, & Wells, 2012;Dimitropoulos & Asteriou, 2009;Fazeli & Aflatooni, 2010;Kaserer & Klingler, 2008;Khanchel El Mehdi, 2011;Koerniadi & Tourani-Rad, 2007;Sehgal, Subramaniam, & Deisting, 2012;Soares & Stark, 2009;Vivattanachang & Supattarakul, 2013). Çelik, € Ozkan, and Akarım (2013) claim the existence of accrual anomaly in the Turkish stock market by using data from 131 manufacturing firms between the years of 1998e2010.…”

“…As expected, mean value of ABNAC it are close to zero (À0.0003). In addition, the standard deviation of 6 Many studies that investigating the presence of the accrual anomaly create decile portfolios (Sloan, 1996;Xie, 2001) to perform the hedge portfolio test while some of other studies use quintile portfolios (Atwood & Xie, 2010;Dopuch et al, 2010;Khanchel El Mehdi, 2011;Koerniadi & Tourani-Rad, 2007;Lev & Nissim, 2006). Mashruwala et al (2006) assert that quintilebased cuts increase the number of observations in the accrual portfolio and thus accrual portfolios will not be affected of idiosyncratic volatility of stocks.…”

Audit Committee, Corporate Governance and Firm Performance: Empirical Evidence from India

“…If the project fails, their reputation and earnings also suffer. Some researchers (Koerniadi & Tourani, 2012;Leung et al, 2014;Shan & McIver, 2011) however, are of the opinion that there cannot be a positive association between the independence of directors and firm performance as independent directors may not have adequate information and knowledge about the firm. Authors such as Balasubramanian et al, (2010); Lange and Sahu (2008) and Sarkar et al (2006) opine that quality of the board is more important as compared to independence for improving firm performance.…”

The influence of the accruals generating process on earnings persistence

“…This disaggregation of earnings also recognises that current period cash flows include items that are not recognised in earnings in the current period, and this might provide insights into the 'cash flow anomaly' that has been identified in some studies (e.g. Anderson et al, 2009;Clinch et al, 2012;Coakley et al, 2008;Koerniadi and Tourani-Rad, 2007).…”