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Differential impact of earnings management on the accrual anomaly

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  • Manish Bansal

    (Indian Institute of Management Kashipur
    Indian Institute of Management Ranchi)

  • Asgar Ali

    (Indian Institute of Management Kashipur)

Abstract

The purpose of the study is to investigate the pricing impact of positive and negative accrual-based earnings management on stock returns. The study considers the moderating role of different cross-sectional effects, namely market effect, size effect, value effect, and momentum effect while examining the association between earnings management and stock return. The pricing impact is examined through univariate, bivariate portfolio methodology, and Fama–MacBeth cross-sectional regression. Based on a sample of 3085 Bombay Stock Exchange-listed stocks, results exhibit that investors perceive positive and negative earnings management differently. It has been found that investors demand a higher premium for stocks with negative earnings management, whereas investors hold stocks with positive earnings management at a lower rate of return. These findings are robust after controlling for cross-sectional effects. The study is among the pioneering attempts to examine the pricing impact of accrual earnings management by taking into account the direction (positive and negative earnings management) as well as the endogeneity nature of earnings management.

Suggested Citation

  • Manish Bansal & Asgar Ali, 2021. "Differential impact of earnings management on the accrual anomaly," Journal of Asset Management, Palgrave Macmillan, vol. 22(7), pages 559-572, December.
    • Handle: RePEc:pal:assmgt:v:22:y:2021:i:7:d:10.1057_s41260-021-00243-z
    DOI: 10.1057/s41260-021-00243-z
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    Cited by:

    1. Bansal, Manish & Kumar, Ashish & Bhattacharyya, Asit & Bashir, Hajam Abid, 2023. "Predictors of revenue shifting and expense shifting: Evidence from an emerging economy," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    2. Pavol Durana & Roman Blazek & Veronika Machova & Miroslav Krasnan, 2022. "The use of Beneish M-scores to reveal creative accounting: evidence from Slovakia," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(2), pages 481-510, June.
    3. Hu, Shuya & Wang, Shengnian, 2024. "Does air pollution affect the accrual anomaly in the Chinese capital market? From the perspective of investment adjustment strategy," Research in International Business and Finance, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Earnings management; Stock returns; Accrual anomaly; India;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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