Open AccessReexamination of Whether Accrual Quality Is a Price Factor
Author(s) -
May Xiaoyan Bao,
Xiaoyan Cheng,
John M. Geppert,
David B. Smith
Publication year - 2019
Publication title -
accounting and finance research
Language(s) - English
Resource type - Journals
eISSN - 1927-5994
pISSN - 1927-5986
DOI - 10.5430/afr.v8n3p103
Subject(s) - accrual , econometrics , economics , cash flow , autoregressive model , quality (philosophy) , panel data , capital asset pricing model , factor analysis , regression , financial economics , actuarial science , statistics , mathematics , finance , earnings , philosophy , epistemology
In this study we investigate whether accrual quality is a factor in capital asset pricing. Our analysis consists of two parts. First, we use a panel data regression that controls for cross-section fixed effects to implement the second stage of the Fama-MacBeth regression (Petersen 2009). In the second part, we use the Campbell (1991) return decomposition and vector autoregressive model (VAR) to decompose the two-stage cross-sectional regressions. This allows us to investigate whether accrual quality is a priced factor in terms of the three components of the return, which include one-period expected return, cash flow news and discount-rate news.