Discussion of “Inventory Changes and Future Returns”

Discussion of “Inventory Changes and Future Returns” 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 sph24@cornell.edu 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 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Inventory Changes and Future Returns”

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Publisher
Springer Journals
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1020274002135
Publisher site
See Article on Publisher Site

Abstract

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 sph24@cornell.edu 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

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 21, 2004

References

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