@techreport{NBERw8308,
 title = "Earnings Quality and Stock Returns",
 author = "Konan Chan and Louis K. C. Chan and Narasimhan Jegadeesh and Josef Lakonishok",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "8308",
 year = "2001",
 month = "May",
 URL = "http://www.nber.org/papers/w8308",
 abstract = {An exclusive focus on bottom-line income misses important information about the quality of earnings. Accruals (the difference between accounting earnings and cash flow) are reliably, negatively associated with future stock returns. Earnings increases that are accompanied by high accruals, suggesting low-quality earnings, are associated with poor future returns. We explore various hypotheses -- earnings manipulation, extrapolative biases about future growth, and under-reaction to business conditions -- to explain accruals' predictive power. Distinctions between the hypotheses are based on evidence from operating performance, the behavior of individual accrual items, and discretionary versus nondiscretionary components of accruals.},
}