Authors: Andreas Tsalas, Georgios Papanastasopoulos, Dimitrios Thomakos

Title: The Accrual Anomaly in the Greek Stock Market: A Case of Accounting Distortions or Growth?

Abstract

In this paper we investigate the effects of accounting accruals on future profitability using a decomposition of accruals in two components, growth defined as growth rate in sales and accounting distortions namely accounting related factors. We form our reasoning on the total accruals measure, which takes into account long-term accruals that appear to be a factor in the accruals literature. Total accruals are negatively related to future profitability and stock returns, and the earnings and stock price performance of accrual hedge portfolios provide a meaningful economic summary of this relationship. We also, we show that growth is responsible for lower earnings persistence, while accounting distortions are not. Our results suggest that, both growth and efficiency determinants do not behave as subsitutes in motivating the accrual effect on future stock returns in the Greek capital market. Our results are consistent with a rational explanation that is based on the q theory of investment and we cannot probably formulate a mispricing hypothesis for the side of accruals attributable to growth.