Asymmetrically Timely Loss Recognition and the Accrual Anomaly. Evidence from Pakistan’s Non-Financial Sectors

Abstract

An important role of Conditional conservatism is to align the timely expense recognition of revenue generated in terms of losses comparative to the profit over negative components of accruals. Accrual anomaly shows asymmetric differential persistence for accruals and cash flows in years of economic gains rather than losses. The direct implication of this research on the pattern of pricing of accruals component of earning exhibits positive relationship of excess returns with accruals and stock returns whereas the negative relationship with earnings, market capitalization, and indicator variable of profit firms. Overall, the research result is consistent with Konstantinidi et al. (2015), accrual effect on stock return is existent for earnings generated firms while not apparent for loss firms. This evidence provides relevant information on the aspects of accrual anomaly and its association with the variables of conditional conservatism on the pricing of accrual during the profit years.