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

The accrual anomaly in Europe: The role of accounting distortions

“…However, tests based on measures of discretionary (abnormal) accruals are not considered in the above study, which does not help to assess whether the accrual effect on stock returns could be linked to accounting distortions in Europe. Concurrently, Doukakis and Papanastasopoulos (2014) show that accounting distortions constitute an important contributing factor on the accrual anomaly in the largest European capital market; the U.K. In a similar vein, Mouselli, Jaafar, and Goddard (2013) show that for the U.K. stocks, accruals quality explains the cross-section of stock returns, but does not represent an asset pricing risk factor.…”

“…Pincus et al (2007) show that the discretionary accruals measured by Jones (1991) predict returns in Australia, Canada and the U.K. Recently, Doukakis and Papanastasopoulos (2014) show that accruals attributable to accounting distortions exhibit a negative impact on future profitability and stock returns in the U.K. stock market. In the same capital market, Mouselli et al (2013) provide evidence that accruals quality is useful in explaining portfolios' returns in the cross-section, but does not constitute a priced risk factor.…”

Earnings relevance changes post the Egyptian revolution crisis

“…The information value of DAC dissimilar to OCF and NDAC critically depends on the managerial discretionary accounting alternatives decisions and the related market’s investors’ interpretation. More precisely, managers use DAC to manage earnings opportunistically (Healy, 1985; Healy and Palepu, 1993 and Subramanyam, 1996) or to signal to the market the firm’s future prospects (Linck et al , 2013; and Doukakis and Papanastasopoulos, 2014). To the level that DAC is the output of financial reporting managerial opportunism, investors would rationally assign a negative DAC value; therefore, it is more likely to observe an insignificant or weak association between stock returns and DAC (Teoh et al , 1998a, b; DuCharme et al , 2004; Louis, 2004; and Choi et al , 2011).…”

“…On the contrary, the stock exchange would assign a positive DAC value based on the degree that managers apply the accounting choices discretion as a firm’s future prospects private information convey tool (Louis and Robinson, 2005; Linck et al , 2013; Doukakis and Papanastasopoulos, 2014; Robin and Wu, 2015). Signaling theory is fundamentally concerned with reducing information asymmetry between two parties (Spence, 2002).…”

Accrual mispricing, value-at-risk, and expected stock returns

“… 5 For example, Doukakis and Papanastasopoulos ( 2014 ) focus on the UK and find that the accrual premium is explained by the presence of accounting distortions. …”