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The role of current and non‐current accruals in the relation between stock returns and earnings
Author(s) -
Loftus Janice A.,
Sin Samantha
Publication year - 1997
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1997.tb00318.x
Subject(s) - accrual , earnings , stock (firearms) , economics , econometrics , accounting , engineering , mechanical engineering
This study examines the role of accruals in the relation between stock returns and earnings for intervals of one to four years. We argue that the roles of current and non‐current accruals differ because the former turn over more frequently while the latter include long term timing differences and permanent differences. Accordingly, the roles of both categories of accruals are examined over intervals within and beyond the cycle of current accruals. The results suggest that accruals strengthen the association between stock returns and earnings and that they are more important for shorter intervals. Further, non‐current accruals play a dominant role in the relation between stock returns and earnings while the effect of current accruals is negligible for all intervals examined.