If investors have limited attention, then accounting outcomes that saliently highlight positive aspects of a firm's performance will promote high market valuations. When cumulative accounting value added (net operating income) over time outstrips cumulative cash value added (free cash flow), it...

We find a positive association between short-selling and accruals during 1988-2009, and that asymmetry between the long and short sides of the accrual anomaly is stronger when constraints on short-arbitrage are more severe (low availability of loanable shares as proxied by institutional...

We provide a model in which a single psychological constraint, limited investor attention, explains both under- and over-reaction to different earnings components. Investor neglect of information in current-period earnings about future earnings induces post-earnings announcement drift and the...

We document considerable return comovement associated with accruals after controlling for other common factors. An accrual-based factor-mimicking portfolio has a Sharpe ratio of 0.16, higher than that of the market factor or the SMB and HML factors of Fama and French (1993). According to...

We find a positive association between short-selling and accruals during 1988-2009, and that asymmetry between the long and short sides of the accrual anomaly is stronger when constraints on short-arbitrage are more severe (low availability of loanable shares as proxied by institutional...

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating...

We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in...

It has been alleged that firms and analysts engage in an earnings guidance game where analysts first issue optimistic earnings forecasts and then 'walk down' their estimates to a level firms can beat at the official earnings announcement. We examine whether the walk-down to beatable targets is...

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating...

We test whether and how equity overvaluation affects corporate financing decisions using an ex ante misvaluation measure that filters firm scale and growth prospects from market price. We find that equity issuance and total financing increase with equity overvaluation; but only among overvalued...