The Accrual Anomaly: International Evidence

Pincus, Morton; Rajgopal, Shivaram; Venkatachalam, Mohan

doi:10.2139/ssrn.386563

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The Accrual Anomaly: International Evidence

41 Pages Posted: 18 Apr 2003

See all articles by Morton Pincus

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Mohan Venkatachalam

Duke University - Fuqua School of Business

There are 2 versions of this paper

Date Written: January 2005

Abstract

We consider stock markets in 20 countries to investigate whether the accruals anomaly (Sloan 1996), characterized by U.S. stock prices overweighting the role of accrual persistence, is a local manifestation of a global phenomenon. In addition, we structure our analysis to determine if the occurrence of the accrual anomaly is related to differences in institutional or accounting structures across the countries. We consider a country's legal tradition, institutional and accounting characteristics linked to earnings management, and capital market characteristics. We find that stock prices overweight accruals in four of the 20 countries we consider: Australia, Canada, the U.K., and the U.S. Results from our multivariate analysis indicate the accrual anomaly is more likely to occur in countries where extensive use of accrual accounting is permitted, the strength of shareholder protection is lower, concentration of share ownership is low, and the legal tradition derives from common law.

JEL Classification: M41, G14, M43, M47

Suggested Citation: Suggested Citation

Pincus, Morton P.K. and Rajgopal, Shivaram and Venkatachalam, Mohan, The Accrual Anomaly: International Evidence (January 2005). Available at SSRN: https://ssrn.com/abstract=386563 or http://dx.doi.org/10.2139/ssrn.386563