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Does The Accrual Anomaly Exists In Stock Market? Evidence From Pakistan

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  • Baloch, Muhammad Saad

Abstract

This study examined the existence of accrual anomaly exclusively in Karachi Stock Exchange by measuring accruals from cash flow approach and by using a sample of 100 non-financial firms registered at Karachi Stock Exchange (KSE) for the time period of 2002 to 2013. The objective of the study is to examine the accrual anomaly by measuring accruals from cash flow approach as measuring accruals from balance sheet approach may contain estimation errors which may lead to biased result i.e. existence of accrual anomaly. Robust Fixed Effect method is used to achieve the objective. Result revealed that accruals predict the future stock returns positively when accruals are measured through cash flow approach which is contradictory to the accrual anomaly. It proved that measuring accruals from balance sheet approach contain estimation errors which lead to biased results. The study concluded that accrual anomaly does not exist in KSE and selection of specific estimation method is reason for accrual anomaly.

Suggested Citation

  • Baloch, Muhammad Saad, 2015. "Does The Accrual Anomaly Exists In Stock Market? Evidence From Pakistan," MPRA Paper 67618, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:67618
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    References listed on IDEAS

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    1. Jawad Mohammad & Attiya Yasmin Javid, 2015. "An Analysis of Accrual Anomaly in Case of Karachi Stock Exchange," PIDE-Working Papers 2015:116, Pakistan Institute of Development Economics.
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    5. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    6. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
    7. Paul Hribar & Daniel W. Collins, 2002. "Errors in Estimating Accruals: Implications for Empirical Research," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 105-134, March.
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    Cited by:

    1. Baloch, Muhammad Saad & Hassan, Arshad, 2016. "Accrual Reversals And Company Performance: Analysis Of Emerging Market," MPRA Paper 80973, University Library of Munich, Germany.

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    More about this item

    Keywords

    Accrual Anomaly; Accruals; Accounting; Earning Management; KSE; Pakistan;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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