The evidence from this study shows that the “accruals anomaly” and
the “capital investment anomaly” are distinct, even though capital
investments and accruals may be related in a certain way. The results also
indicate that, after adjustment for the Fama–French three risk factors,
investors earn substantially higher returns by using a strategy that exploits
both anomalies at the same time than by exploiting either anomaly alone. Using
current accruals as the measure of accruals produced similar results to using
total accruals, and the results are robust to various measures of return. The
evidence suggests that managers in companies ranked highest in both accruals and
capital investments may be overly optimistic about future demand for their
products.