TY  - JOUR
AU  - Wu,Jin Ginger
AU  - Zhang,Lu
AU  - Zhang,X. Frank
TI  - Understanding the Accrual Anomaly
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13525
PY  - 2007
Y2  - October 2007
UR  - http://www.nber.org/papers/w13525
L1  - http://www.nber.org/papers/w13525.pdf
N1  - Author contact info:
Jin Ginger Wu
443 Brooks Hall
Terry College of Business
University of Georgia
Athens, GA 30602
E-Mail: jinw@terry.uga.edu

Lu Zhang
Fisher College of Business
The Ohio State University
2100 Neil Avenue
Columbus, OH 43210
Tel: 585-267-6250
E-Mail: zhanglu@fisher.osu.edu

X. Frank Zhang
Yale School of Management
135 Prospect Street
New Haven CT 06520
E-Mail: frank.zhang@yale.edu
AB  - Interpreting accruals as working capital investment, we hypothesize that firms rationally adjust their investment to respond to discount rate changes. Consistent with the optimal investment hypothesis, we document that (i) the predictive power of accruals for future stock returns increases with the covariations of accruals with past and current stock returns, and (ii) adding investment- based factors into standard factor regressions substantially reduces the magnitude of the accrual anomaly. High accrual firms also have similar corporate governance and entrenchment indexes as low accrual firms. This evidence suggests that the accrual anomaly is more likely to be driven by optimal investment than by investor overreaction to excessive growth or over-investment.
ER  -