Review of Accounting Studies, 7, 189–193, 2002 C 2002 Kluwer Academic Publishers. Manufactured in The Netherlands. Discussion of “Inventory Changes and Future Returns” PAUL HRIBAR firstname.lastname@example.org Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853 The pricing of accruals has generated a substantial amount of research since Sloan (1996) ﬁrst provided evidence that accounting accruals are mispriced by the market, and that forming a hedge portfolio on the basis of the accrued portion of net income could earn abnormal returns of over ten percent in the following year. This striking result has survived numerous robustness tests using different time periods, different measures of accruals, different risk adjustments, and examining whether the accrual mispricing is subsumed by other market anomalies. The result has always been the same—the market overprices the accrual component of net income. The fact that accruals are the life-blood of accounting makes this anomaly particularly intriguing to accounting academics. More recent studies have measured the reaction of var- ious intermediaries and market participants (e.g., analysts, auditors, institutional investors, etc.), and decomposed total accruals into ﬁner partitions in order to learn more about the economic construct driving the anomaly. The Thomas and Zhang (2002) paper falls squarely
Review of Accounting Studies – Springer Journals
Published: Oct 21, 2004
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