Premium
Decomposing the accrual premium: The evidence from two markets
Author(s) -
Chichernea Doina,
Holder Anthony,
Petkevich Alex
Publication year - 2019
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12394
Subject(s) - accrual , equity (law) , predictability , economics , debt , monetary economics , capital market , investment (military) , component (thermodynamics) , equity premium puzzle , business , financial economics , econometrics , risk premium , accounting , finance , earnings , mathematics , statistics , physics , politics , political science , law , thermodynamics
We decompose the accrual premium and study its components in the debt and equity markets. We show that the importance of each accrual component depends on the sample and the type of market considered. The short‐term accruals component is primarily observed in equity markets, among small and young companies, which is consistent with mispricing arguments. The long‐term accruals premium is consistently positive and significant in different samples and markets. This component reflects growth in capital expenditures, and it is counter‐cyclical and predictable, which is in line with investment‐based explanations. Finally, the financial accruals component does not generate predictability.