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The persistence of earnings and cash flows and the role of special items: Implications for the accrual anomaly
Bibliografi
Author:
Dechow, Patricia M.
;
Ge, Weili
Bahasa:
(EN )
Penerbit:
The University Michigan Press
Tempat Terbit:
Michigan
Tahun Terbit:
2005
Jenis:
Papers/Makalah
Fulltext:
DechowandGe.pdf
(632.87KB;
16 download
)
Abstract
We contend that accounting rules that adopt a balance sheet perspective reduce the persistence of earnings and special items are indicative of firms applying such accounting rules. We document that a high proportion of low accrual firms report special items and that special items are important drivers of the low persistence of earnings in these firms. Additional tests show that future stock returns to low accrual-special item firms are consistently higher than for other low accrual firms. These results suggest that investors misunderstand the transitory nature of special items in low accrual firms. Further analysis investigates why investors misunderstand special items given that managers have incentives to highlight them. We find that low accrual-special item firms have negative investor sentiment and are more susceptible to fundamental risk. However, special items continue to explain future returns after controlling for these explanations suggesting special items are incrementally useful in identifying undervalued low accrual firms.
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