Title: Does the Accrual Anomaly Reflect a Risk Factor? The Case of the Korean Stock Market *
Abstract: This paper examines whether the accrual anomaly exists in Korean stock markets as in the U.S., and tests whether the accrual anomaly is associated with a potential risk factor that can be included in a rational asset pricing model. Accruals are commonly measured by the difference between accounting earnings and operating cash flows, and have been considered the most important accounting variable for measuring the degree of earnings management and earnings quality in the literature. For example, Sloan (1996) studied the stock market responses on the operating accruals produced largely by managers’ discretion and found the strong tendency of firms with high operating accruals to earn lower stock returns on average than those with low operating accruals. Since then, many studies report evidence that such an accrual anomaly is a common phenomenon existing in other stock markets, too. There are two explanations for the possible sources of the accrual anomaly. The first one is a risk factor hypothesis based on the market efficiency, which predicts that the accrual anomaly arises from the compensation for a potential risk factor that is not included in the existing asset pricing models. In contrast, the second explanation is a mispricing
Publication Year: 2007
Publication Date: 2007-01-01
Language: en
Type: article
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Cited By Count: 7
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