The accrual anomaly in the Greek stock market

Georgios A Papanastasopoulos,Dimitrios D Thomakos,Andreas I Tsalas

doi:10.21511/imfi.13(2-2).2016.07

Georgios A Papanastasopoulos, Dimitrios D Thomakos + Show 1 more

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https://doi.org/10.21511/imfi.13(2-2).2016.07

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Abstract

The authors examine the negative relation of traditional accruals and % accruals with future returns in the Greek stock market. Positive abnormal returns from hedge portfolios on both accrual measures summarize the economic significance of this negative relation. The magnitude of returns obtained from traditional accruals is higher than that obtained from % accruals, contrary to existing evidence from the U.S. capital market. The analysis suggests that the accrual anomaly appears to be present in the Greek stock market: this has macroeconomic implications because firms with low reported accruals may exhibit higher stock returns and at this time, during the ongoing Greek capital market crisis, investors are more likely to gain substantial abnormal returns in the future – if and when the Greek economy returns to positive growth

Highlights

The recent crescendo of the Greek capital controls crisis left the country with its banks and stock market closed
Sloan (1996) was the first who demonstrated the accrual anomaly in the U.S capital market and he examined the impact of different persistence levels of the cash flow and the accrual components of earnings and the resulting impact on stock prices
Our results suggest that the best NAV value is observed for Traditional accruals (TACC) for the sub-period 1987-2000 and excess capital gains could be obtained at low accrual deciles which, in turn, implies that the accrual anomaly seems to be present in the Greek Capital Market for the whole tested period 1987-2011

Summary

Introduction

The recent crescendo of the Greek capital controls crisis left the country with its banks and stock market closed. The international setting of the accrual anomaly was first investigated by Pincus, Rajgopal and Venkatachalam (2007) They show that the accrual anomaly is found outside the US capital market (in Australia, Canada and the UK), and its existence is associated with specific accounting and institutional factors like legal tradition, shareholder protection, permission to use accrual accounting and ownership concentration. They provide additional evidence on the magnitude of the accrual effect on stock returns throughout the world. We extent the Papanastasopoulos (2014) study by (1) by considering a longer sample period which includes the recent economic crisis, (2) by diving the sample in two distinctive periods, the pre-euro era and after the adoption of euro as Greece’s official currency and (3) by performing a more detailed analysis on the magnitude and significance on the presence of the accrual anomaly

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