Accruals, cash flows, and aggregate stock returns

By David A. Hirshleifer, Kewei Hou, Siew Hong Teoh. 2009

249 citations recorded by the source corpus.

This paper examines whether the firm-level accrual and cash flow effects extend to the aggregate stock market. In sharp contrast to previous firm-level findings, aggregate accruals is a strong positive time series predictor of aggregate stock returns, and cash flows is a negative predictor. In addition, innovations in accruals are negatively contemporaneously correlated with aggregate returns, and innovations in cash flows are positively correlated with returns. These findings suggest that innovations in accruals and cash flows contain information about changes in discount rates, or that firms manage earnings in response to marketwide undervaluation.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/047e243ec3328279009c3b94ace684a7acda89b0

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Citations in the corpus

Predictability of Returns and Cash Flows (2011, unknown): “…firms using firm-level variables such as the market-value to replacement cost (Q) or book-to-market ratio, the investment rate, the labor hiring rate, past returns, earnings surprises, accruals, corporate events, etc; see for example Zhang (2005); Bazdrech et al. (2009); Hirshleifer et al. (2009).”
Does the Scope of the Sell-Side Analyst Industry Matter? An Examination of Bias, Accuracy, and Information Content of Analyst Reports: Does the Scope of the Sell-Side Analyst Industry Matter? (2017, unknown): “…(such as poor post-equity issuance returns) are observed at aggregate levels (e.g.,Baker and Wurgler (2006)), others (such as post earnings announcement drift and the accruals anomaly) weaken or even reverse direction (e.g., Kothari, Lewellen, and Warner (2006); Hirshleifer, Hou, and Teoh (2009)).”
Accruals, Cash Flows, and Operating Profitability in the Cross Section of Stock Returns (2016, methodology): “…accruals allow the regression to extract the cash- 1There is a substantial literature on the accrual anomaly that includes Fama and French (2006), Hirshleifer, Hou, and Teoh (2009), Polk and Sapienza (2009), Hirshleifer and Jiang (2010), Li and Zhang (2010), Hirshleifer, Teoh, and Yu (2011),…”
Implications for GAAP from an Analysis of Positive Research in Accounting (2010, methodology): “The theory of GAAP implicit in the economics-based literature explains and predicts many accounting conventions that have long-run survival value in financial reporting (conservatism and verifiability being obvious examples) and that are consistent with an efficient contracting perspective but not a”
Short Interest and Aggregate Stock Returns (2016, background): “In addition, Hirshleifer, Hou, and Teoh (2009) find a reversal in the accrual-return relation from negative at the firm level to positive at the aggregate level.”
Does gender diverse board mean less earnings management (2015, unknown): “Hirshleifer et al. (2009) argued that operating accruals are mainly driven by macroeconomic factors, which may explain the result.”