Is accruals quality a priced risk factor?

Is accruals quality a priced risk factor? 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Is accruals quality a priced risk factor?

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Publisher
Elsevier
Copyright
Copyright © 2008 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2007.08.001
Publisher site
See Article on Publisher Site

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.

Journal

Journal of Accounting and EconomicsElsevier

Published: Sep 1, 2008

References

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