TY  - JOUR
AU  - Chan,Konan
AU  - Chan,Louis K. C.
AU  - Jegadeesh,Narasimhan
AU  - Lakonishok,Josef
TI  - Earnings Quality and Stock Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8308
PY  - 2001
Y2  - May 2001
UR  - http://www.nber.org/papers/w8308
L1  - http://www.nber.org/papers/w8308.pdf
N1  - Author contact info:
Louis Chan
Department of Finance
University of Illinois
113 Commerce West, MC 706
1206 S. Sixth
Champaign, IL 61820
Tel: 217/333-6391
E-Mail: l-chan2@uiuc.edu

Narasimhan Jegadeesh
Goizueta Business School
Emory University
1300 Clifton Road
Suite 507
Atlanta, GA 30322
Tel: 404/727-4821
E-Mail: narasimhan_jegadeesh@bus.emory.edu

Josef Lakonishok
University of Illinois, Department of Finance
College of Commerce & Business Administration
1206 S. Sixth Street
Champaign, IL 61820
Tel: 217/333-7185
Fax: 217/244-1151
E-Mail: jlakonishok@yahoo.com
AB  - 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.
ER  -