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Department of Applied Finance and Actuarial Studies

Seminar by Maria Strydom

Research Seminars - business and economics
  • Topic: The Interaction of NOA and Accruals in the Mispricing of Balance Sheet Bloat
  • Speaker: Dr Maria Strydom, Assistant Lecturer, Department of Accounting and Finance, Monash University
  • Venue:Seminar Room, Level 6, Room 623, E4A
  • Time: 11.30am - 12.30pm (Morning Tea from 11am)

Consistent with US findings, this paper documents a negative relationship between future stock
returns and each of accruals and net operating assets (NOA). While accruals and NOA convey unique
information for future returns, NOA appears to have a moderating influence on the accruals effect. A
significant accruals effect is observed amongst stocks with high NOA. In contrast, no accrual effect
exists for stocks with low NOA. This finding suggests that, contrary to conventional belief, high levels
of accruals per se are not bad news. An accrual effect only arises for firms that have a sustained
track record of not converting accruals into cashflow. A regression-based version of the Mishkin
rationality test finds that NOA and, to a lesser extent, accruals are overpriced. Importantly,
inferences from these rationality tests are shown to be highly sensitive to econometric assumptions
over the error term in the panel regression.

View the full paper "The Interaction of NOA and Accruals in the Mispricing of Balance Sheet Bloat" (PDF)


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