Munich Personal RePEc Archive

Does The Accrual Anomaly Exists In Stock Market? Evidence From Pakistan

Baloch, Muhammad Saad (2015): Does The Accrual Anomaly Exists In Stock Market? Evidence From Pakistan. Published in: EUROPEAN JOURNAL OF ACCOUNTING, FINANCE & BUSINESS , Vol. 3, No. 3 (25 October 2015): pp. 44-71.

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Abstract

This study examined the existence of accrual anomaly exclusively in Karachi Stock Exchange by measuring accruals from cash flow approach and by using a sample of 100 non-financial firms registered at Karachi Stock Exchange (KSE) for the time period of 2002 to 2013. The objective of the study is to examine the accrual anomaly by measuring accruals from cash flow approach as measuring accruals from balance sheet approach may contain estimation errors which may lead to biased result i.e. existence of accrual anomaly. Robust Fixed Effect method is used to achieve the objective. Result revealed that accruals predict the future stock returns positively when accruals are measured through cash flow approach which is contradictory to the accrual anomaly. It proved that measuring accruals from balance sheet approach contain estimation errors which lead to biased results. The study concluded that accrual anomaly does not exist in KSE and selection of specific estimation method is reason for accrual anomaly.

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