The Journal of Asian Finance, Economics and Business

Korea Distribution Science Association (한국유통과학회)
권호 표지
DOI QR코드

DOI QR Code

Relationship between Accrual Anomaly and Stock Return: The Case of Vietnam

  • Received : 2019.07.07
  • Accepted : 2019.09.24
  • Published : 2019.11.30
Download PDF
⟨ Previous Next ⟩

Abstract

The study investigates the impact of accrual anomaly on stock return ratio of listed firms in Vietnam. Data were collected from listed firms for the period from 2008 to 2018. To learn about the causes of accrual anomaly in returns and future rate of returns on the Vietnamese stock market, this research is based on accrual analysis of Richardson, Sloan, Soliman, and Tuna (2006) on growth and effective components. We employ GLS regression model for examining the impact of accrual anomaly on stock return ratio and T-test for checking the difference between the lowest and the highest portfolio. The results show that accounting distortion is the main factor impacting the stock return, not growth determinant. Both two determinants of accounting distortion and growth contribute the explanation of the impact of accrual anomaly on profit and future stock return ratio. Experimental evidence confirms an abnormal existence of accrual in the Vietnam stock market. Aggregate accrual is negatively correlated with future operating profit and future stock return. However, after considering the factors contributing to the impact of future profitability and return on stock returns, the study results show that accounting distortion can account for low sustainability of income that is not growth.

Keywords

References

  1. Alqerm, J. F., & Obeid, S. N. S. (2014). The pricing of the real earnings management evidence from Malaysian Stock Exchange. Journal of Al-Quds Open University, 333(2295), 1-43.
  2. Bradshaw, M. T., Richardson, S. A., & Sloan, R. G. (2001). Do analysts and auditors use information in accruals? Journal of Accounting Research, 39(1), 45-74. https://doi.org/10.1111/1475-679X.00003
  3. Chudek, M., Truong, C., & Veeraraghavan, M. (2011). Is trading on earnings surprises a profitable strategy? Canadian evidence. Journal of International Financial Markets, Institutions and Money, 21(5), 832-850. https://doi.org/10.1016/j.intfin.2011.06.004
  4. Dang, N. H., Hoang, T. V. H., & Tran, M. D. (2017). Factors affecting earnings management: The case of listed firms in Vietnam. International Journal of Economic Research, 14(20), 117-134.
  5. Dang, N. H., Do, H. L., Tran, T. V. H., Tran, M. D., & Ha, T. T. V. (2018). Factors influencing accrual earnings management and real earnings management: The case of Vietnam. Paper presented at the International Conference on Humanities and Social Sciences, Khon Kaen University, Thailand.
  6. Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35-59. https://doi.org/10.2308/accr.2002.77.s-1.35
  7. Dechow, P. M., Richardson, S. A., & Sloan, R. G. (2008). The persistence and pricing of the cash component of earnings. Journal of Accounting Research, 46(3), 537-566. https://doi.org/10.1111/j.1475-679X.2008.00283.x
  8. Dechow, P. M., & Sloan, R. G. (1997). Returns to contrarian investment strategies: Tests of naive expectations hypotheses. Journal of Financial Economics, 43(1), 3-27. https://doi.org/10.1016/S0304-405X(96)00887-2
  9. Fairfield, P. M., Whisenant, J. S., & Yohn, T. L. (2003a). Accrued earnings and growth: Implications for future profitability and market mispricing. The Accounting Review, 78(1), 353-371. https://doi.org/10.2308/accr.2003.78.1.353
  10. Fairfield, P. M., Whisenant, S., & Yohn, T. L. (2003b). The differential persistence of accruals and cash flows for future operating income versus future profitability. Review of Accounting Studies, 8(2-3), 221-243. https://doi.org/10.1023/A:1024413412176
  11. Healy, P. M. (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7(1), 85-107. https://doi.org/10.1016/0165-4101(85)90029-1
  12. Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. doi:DOI: 10.2307/2491047
  13. Kim, Y. J., Kim, J. H., Kwon, S., & Lee, S. J. (2015). Percent accruals and the accrual anomaly: Korean evidence. Pacific-Basin Finance Journal, 35, 340-366. https://doi.org/10.1016/j.pacfin.2015.02.006
  14. La Porta, R. (1996). Expectations and the cross-section of stock returns. The Journal of Finance, 51(5), 1715-1742. https://doi.org/10.1111/j.1540-6261.1996.tb05223.x
  15. La Porta, R., Lakonishok, J., Shleifer, A., & Vishny, R. (1997). Good news for value stocks: Further evidence on market efficiency. Journal of Finance, 859-874. https://doi.org/10.1111/j.1540-6261.1997.tb04825.x
  16. LaFond, R. (2005). Is the accrual anomaly a global anomaly? MIT Sloan School of Management Working paper 455-05. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=782726&download=yes.
  17. Lakonishok, J., Shleifer, A., & Vishny, R. W. (1994). Contrarian investment, extrapolation, and risk. The Journal of Finance, 49(5), 1541-1578. https://doi.org/10.1111/j.1540-6261.1994.tb04772.x
  18. Leippold, M., & Lohre, H. (2012). Data snooping and the global accrual anomaly. Applied Financial Economics, 22(7), 509-535. https://doi.org/10.1080/09603107.2011.631892
  19. Nguyen, T. T., Dao, T. T. G., & Truong, H. H. (2015). The determinants of merger withdrawals' abnormal returns in the Australian market. Journal of Economics and Development, 17(3), 89-110. https://doi.org/10.33301/2015.17.03.05
  20. Pincus, M., Rajgopal, S., & Venkatachalam, M. (2007). The accrual anomaly: International evidence. The Accounting Review, 82(1), 169-203. https://doi.org/10.2308/accr.2007.82.1.169
  21. Polk, C., & Sapienza, P. (2008). The stock market and corporate investment: A test of catering theory. The Review of Financial Studies, 22(1), 187-217. https://doi.org/10.1093/rfs/hhn030
  22. Richardson, S. A., Sloan, R. G., Soliman, M. T., & Tuna, I. (2005). Accrual reliability, earnings persistence and stock prices. Journal of Accounting and Economics, 39(3), 437-485. https://doi.org/10.1016/j.jacceco.2005.04.005
  23. Richardson, S. A., Sloan, R. G., Soliman, M. T., & Tuna, I. (2006). The implications of accounting distortions and growth for accruals and profitability. The Accounting Review, 81(3), 713-743. https://doi.org/10.2308/accr.2006.81.3.713
  24. Shi, L., & Zhang, H. (2012). Can the earnings fixation hypothesis explain the accrual anomaly? Review of Accounting Studies, 17(1), 1-21. https://doi.org/10.1007/s11142-011-9171-6
  25. Sloan, R. G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? Accounting Review, 71(3), 289-315.
  26. Titman, S., Wei, K. J., & Xie, F. (2013). Market development and the asset growth effect: International evidence. Journal of Financial and Quantitative Analysis, 48(5), 1405-1432. https://doi.org/10.1017/S0022109013000495
  27. Vivattanachang, D., & Supattarakul, S. (2013). The earnings persistence and the market pricing of earnings and their cash flow and accrual components of Thai firms. Journal of Accounting Profession, 9(25), 63-79.
  28. Watanabe, A., Xu, Y., Yao, T., & Yu, T. (2013). The asset growth effect: Insights from international equity markets. Journal of Financial Economics, 108(2), 529-563. https://doi.org/10.1016/j.jfineco.2012.12.002
  29. Wu, J., Zhang, L., & Zhang, X. F. (2010). The q-theory approach to understanding the accrual anomaly. Journal of Accounting Research, 48(1), 177-223. https://doi.org/10.1111/j.1475-679X.2009.00353.x
  30. Xie, H. (2001). The mispricing of abnormal accruals. The Accounting Review, 76(3), 357-373. https://doi.org/10.2308/accr.2001.76.3.357
  31. Zhang, X. F. (2007). Accruals, investment, and the accrual anomaly. The Accounting Review, 82(5), 1333-1363. https://doi.org/10.2308/accr.2007.82.5.1333

Cited by

  1. A Research on the Relationship between Accrual-based Earnings Management and Real Earnings Management in the Retail Industry vol.17, pp.12, 2019, https://doi.org/10.15722/jds.17.12.201912.5
  2. Overconfidence Bias, Comparative Evidences between Vietnam and Selected ASEAN Countries vol.7, pp.3, 2019, https://doi.org/10.13106/jafeb.2020.vol7.no3.101
  3. Sustainable Earnings and Its Forecast: The Case of Vietnam vol.7, pp.3, 2019, https://doi.org/10.13106/jafeb.2020.vol7.no3.73
  4. The Pricing of Accruals Quality with Expected Returns: Vector Autoregression Return Decomposition Approach vol.11, pp.3, 2019, https://doi.org/10.13106/jidb.2020.vol11.no3.7
  5. The Effects of Widening Daily Stock Price Limits on the Relevance between Audit Quality and Stock Return vol.7, pp.4, 2019, https://doi.org/10.13106/jafeb.2020.vol7.no4.107
  6. A Comparison of Models for Predicting Discretionary Accruals: A Cross-Country Analysis vol.7, pp.9, 2019, https://doi.org/10.13106/jafeb.2020.vol7.no9.315
  7. The Relationships between Abnormal Return, Trading Volume Activity and Trading Frequency Activity during the COVID-19 in Indonesia vol.8, pp.2, 2019, https://doi.org/10.13106/jafeb.2021.vol8.no2.0737
  8. Influence of Corporate Governance on Dividend Policy in Vietnam vol.8, pp.2, 2021, https://doi.org/10.13106/jafeb.2021.vol8.no2.0893
  9. Behavioral Factors on Individual Investors' Decision Making and Investment Performance: A Survey from the Vietnam Stock Market vol.8, pp.3, 2019, https://doi.org/10.13106/jafeb.2021.vol8.no3.0845
  10. Costs and Operational Revenue, Loan to Deposit Ratio Against Return on Assets: A Case Study in Indonesia vol.8, pp.5, 2019, https://doi.org/10.13106/jafeb.2021.vol8.no5.0109