Testing for asymmetric effects in the accrual anomaly using piecewise linear regressions: Australian evidence

Anderson, Kristen, Woodhouse, Kerrie, Ramsay, Alan and Faff, Robert (2009) Testing for asymmetric effects in the accrual anomaly using piecewise linear regressions: Australian evidence. Pacific Accounting Review, 21 1: 5-25. doi:10.1108/01140580910956830


Author Anderson, Kristen
Woodhouse, Kerrie
Ramsay, Alan
Faff, Robert
Title Testing for asymmetric effects in the accrual anomaly using piecewise linear regressions: Australian evidence
Journal name Pacific Accounting Review   Check publisher's open access policy
ISSN 0114-0582
2041-5494
Publication date 2009
Sub-type Article (original research)
DOI 10.1108/01140580910956830
Volume 21
Issue 1
Start page 5
End page 25
Total pages 21
Place of publication W Yorks, United Kingdom
Publisher Emerald Group Publishing
Language eng
Formatted abstract
Purpose – The purpose of this paper is to test the persistence and pricing of earnings, free cash flows
(FCF) and accruals using Australian data. In response to arguments concerning omitted variables in
the Mishkin test, it seeks to explore asymmetric effects by incorporating categoric variables capturing
firm size (microcap, small, medium and large); industry (industrial/mining); profit making (profit/loss);
and dividend paying (contemporaneous dividend/no contemporaneous dividend) into forecasting and
pricing equations.
Design/methodology/approach –
The paper examines a large sample of hand-checked Australian
earnings, accruals and cash flow data. It analyses these data using a series of piecewise linear
regressions.
Findings – The results indicate that asymmetry is a valid concern since the extent and nature of
mispricing of earnings components vary considerably across the categories included in the model. For
example, the base case firms (microcap, loss-making, resource companies that pay no
contemporaneous dividends) exhibit no evidence of significant differences between the actual and
implied persistence of FCF and accruals. Conversely, for industrial firms, the implied persistence of
FCF and accruals from the pricing equation significantly underestimates the persistence of both
earnings components as shown in the forecasting equation.
Originality/value – The study extends the research investigating the accruals anomaly by
accommodating different factors that might induce asymmetric effects. Based on the evidence, such
effects represent an important consideration for work conducted in this and related accounting
research areas.
Keyword Pricing
Earnings
Cash flow
Australia
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Journal Article
Sub-type: Article (original research)
Collection: UQ Business School Publications
 
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Created: Thu, 03 Mar 2011, 14:13:54 EST by Karen Morgan on behalf of UQ Business School