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Is accruals quality a priced risk factor?

Author

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  • Core, John E.
  • Guay, Wayne R.
  • Verdi, Rodrigo

Abstract

In a recent and influential empirical paper, Francis, LaFond, Olsson, and Schipper (FLOS) [2005. The market pricing of accruals quality. Journal of Accounting and Economics 39, 295-327] conclude that accruals quality (AQ) is a priced risk factor. We explain that FLOS' regressions examining a contemporaneous relation between excess returns and factor returns do not test the hypothesis that AQ is a priced risk factor. We conduct appropriate asset-pricing tests for determining whether a potential risk factor explains expected returns, and find no evidence that AQ is a priced risk factor.

Suggested Citation

  • Core, John E. & Guay, Wayne R. & Verdi, Rodrigo, 2008. "Is accruals quality a priced risk factor?," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 2-22, September.
    • Handle: RePEc:eee:jaecon:v:46:y:2008:i:1:p:2-22
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    References listed on IDEAS

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