New Accounting Standards’ Influence On The Accrual Anomaly Of China’s Stock Market

Sloan(1996) found, using accounting accrual information to form investment strategiescan get abnormal return. The reason that one can obtaining abnormal return is theinvestors can not differentiate the difference of accounting accrual and cash flow.Sloan(1996) named this phenomenon “Accrual Anomaly”. We enforced new accountingstandards since2007, and the “Sound Value” is introduced into the new accountingstandards. The great change must bring change to the composition of accountingearnings.I used the research method of Sloan(1996) for getting abnormal return. I chose data of AStock of Shanghai Stock Exchange and Shenzhen Stock Exchange, ranging from2005to2010, and compared the persistence of accounting earnings. The research found, thepersistence of accounting accrual is below the persistence of cash flow. Afterenforcement of the new accounting standards, the persistence of accounting accrual issignificantly lower than the persistence of cash flow, the persistent difference ofaccounting accrual and cash flow rise significantly. By using Cumulative AverageReturn of Fama(1996), I found I couldn’t get abnormal return by investment strategy ofSloan(1996).The contributions of this article are as follow: there is few articles studying newaccounting standards from accrual anomaly. Accounting information has decision effect,if the investors cannot understand the accounting accrual well, they cannot price thestock precisely，which effects the quality of accounting quality. We can study the effectof our new accounting standards by studying the accrual anomaly.