Reexamination of Whether Accrual Quality Is a Price Factor

May Xiaoyan Bao, Xiaoyan Cheng, John Geppert, David B. Smith

Abstract


In this study we investigate whether accrual quality is a factor in capital asset pricing. Our analysis consists of two parts. First, we use a panel data regression that controls for cross-section fixed effects to implement the second stage of the Fama-MacBeth regression (Petersen 2009). In the second part, we use the Campbell (1991) return decomposition and vector autoregressive model (VAR) to decompose the two-stage cross-sectional regressions. This allows us to investigate whether accrual quality is a priced factor in terms of the three components of the return, which include one-period expected return, cash flow news and discount-rate news. 


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DOI: https://doi.org/10.5430/afr.v8n3p103

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online)

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