We're using cookies, but you can turn them off in your browser settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy

Bridge over ocean
1 July 2006 Financial Analysts Journal Volume 62, Issue 4

Cash Flows, Accruals, and Future Returns

  1. Joshua Livnat
  2. Massimo Santicchia

This study explored the “accrual anomaly.” The study is unique because it analyzed originally reported—unrestated—quarterly data for 1991 through the first quarter of 2004 to calculate accruals and used U.S. SEC filing dates to identify the day on which investors first obtained information about accruals. The study found that the accrual anomaly exists for quarterly accruals as has been found for annual accruals. Future quarterly earnings were found to be more highly associated with current net operating cash flows than with accruals because accruals have less persistence than cash flows. Companies with extremely high (low) current quarterly accruals have significant and negative (positive) abnormal returns through the subsequent four quarters.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content