Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5086926 | Journal of Accounting and Economics | 2008 | 21 Pages |
Abstract
In a recent and influential empirical paper, Francis, LaFond, Olsson, and Schipper (FLOS) [2005. The market pricing of accruals quality. Journal of Accounting and Economics 39, 295-327] conclude that accruals quality (AQ) is a priced risk factor. We explain that FLOS' regressions examining a contemporaneous relation between excess returns and factor returns do not test the hypothesis that AQ is a priced risk factor. We conduct appropriate asset-pricing tests for determining whether a potential risk factor explains expected returns, and find no evidence that AQ is a priced risk factor.
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Authors
John E. Core, Wayne R. Guay, Rodrigo Verdi,