The profitability of trading NOA and accruals: one effect or two?

Philip Gray; Iris Siyu Liao; Maria Strydom

doi:10.1016/j.irfa.2017.10.004

The profitability of trading NOA and accruals: one effect or two?

Philip Gray, Iris Siyu Liao, Maria Strydom

Banking & Finance

Research output: Contribution to journal › Article › Research › peer-review

7 Citations (Scopus)

Abstract

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 an important moderating influence on the accrual effect. A significant accrual effect is observed amongst stocks with high NOA. In contrast, no accrual effect exists for stocks with low NOA. This finding suggests that 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.

Original language	English
Pages (from-to)	211-224
Number of pages	14
Journal	International Review of Financial Analysis
Volume	58
DOIs	https://doi.org/10.1016/j.irfa.2017.10.004
Publication status	Published - 1 Jul 2018

Keywords

Accruals
Anomaly
Market efficiency
Mispricing
Net operating assets

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10.1016/j.irfa.2017.10.004

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title = "The profitability of trading NOA and accruals: one effect or two?",

abstract = "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 an important moderating influence on the accrual effect. A significant accrual effect is observed amongst stocks with high NOA. In contrast, no accrual effect exists for stocks with low NOA. This finding suggests that 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.",

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author = "Philip Gray and Liao, {Iris Siyu} and Maria Strydom",

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N2 - 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 an important moderating influence on the accrual effect. A significant accrual effect is observed amongst stocks with high NOA. In contrast, no accrual effect exists for stocks with low NOA. This finding suggests that 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.

AB - 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 an important moderating influence on the accrual effect. A significant accrual effect is observed amongst stocks with high NOA. In contrast, no accrual effect exists for stocks with low NOA. This finding suggests that 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.

KW - Accruals

KW - Anomaly

KW - Market efficiency

KW - Mispricing

KW - Net operating assets

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JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

ER -

The profitability of trading NOA and accruals: one effect or two?

Abstract

Keywords

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