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The accrual anomaly financial problem in the food supply chain

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Author Info

  • Carlos J. Trejo-Pech

    (School of Business and Economics, Universidad Panamericana at Guadalajara, Jalisco, Mexico)

  • Richard N. Weldon

    (Food and Resource Economics Department, University of Florida, Gainesville, FL)

  • Lisa A. House

    (Food and Resource Economics Department, University of Florida, Gainesville, FL)

  • Michael A. Gunderson

    (Food and Resource Economics Department, University of Florida, Gainesville, FL)

Abstract

This study introduces the accrual anomaly problem in the agribusiness literature. The authors document the accrual anomaly, introduced by Sloan (1996) for the complete U.S. market, in the food supply chain. A mimicked risk-free trading strategy shorting high accrual agribusinesses and longing low accrual agribusinesses yield statistically significant annual abnormal returns of 5.9% during 1970-2004. Results for the food supply chain are different from results by Sloan and others. In particular, results for high accrual agribusiness are similar to results by Sloan for the complete U.S. market, but low accrual agribusinesses perform differently. The authors believe that this contrasting result is not industry specific, but rather a result supporting the idea that the fixation hypothesis by Sloan fails to explain the accrual anomaly problem. This is important because the fixation hypothesis is prevalent in the literature; a well-articulated hypothesis on the accrual anomaly has not yet been offered. © 2009 Wiley Periodicals, Inc.

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File URL: http://hdl.handle.net/10.1002/agr.20190
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 25 (2009)
Issue (Month): 4 ()
Pages: 520-533

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Handle: RePEc:wly:agribz:v:25:y:2009:i:4:p:520-533

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Kothari, S.P. & Loutskina, E. & Nikolaev, V., 2006. "Agency Theory of Overvalued Equity as an Explanation for the Accrual Anomaly," Discussion Paper 2006-103, Tilburg University, Center for Economic Research.
  2. Alford, Andrew W. & Jones, Jennifer J. & Zmijewski, Mark E., 1994. "Extensions and violations of the statutory SEC form 10-K filing requirements," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 229-254, January.
  3. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
  4. Mashruwala, Christina & Rajgopal, Shivaram & Shevlin, Terry, 2006. "Why is the accrual anomaly not arbitraged away? The role of idiosyncratic risk and transaction costs," Journal of Accounting and Economics, Elsevier, vol. 42(1-2), pages 3-33, October.
  5. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  6. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
  7. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  8. Konan Chan & Louis K. C. Chan & Narasimhan Jegadeesh & Josef Lakonishok, 2006. "Earnings Quality and Stock Returns," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1041-1082, May.
  9. John D. Lyon & Brad M. Barber & Chih-Ling Tsai, 1999. "Improved Methods for Tests of Long-Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, 02.
  10. Sara Schumacher & Michael Boland, 2005. "The effects of industry and firm resources on profitability in the food economy," Agribusiness, John Wiley & Sons, Ltd., vol. 21(1), pages 97-108.
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Cited by:
  1. Arthur, Bruno & Katchova, Ani L., 2012. "Accruals Anomaly in Agriculture Financial Economics," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119822, Southern Agricultural Economics Association.

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