Research On Accrual Anomaly Under Asset-liability View

According to Efficient Market hypothesis (EMH), the stock prices in share market has reflected all information issued, so the investors couldn’t get abnormal return of investment. Since1980s, more and more capital pricing phenomena inconsistent with EMH have been found by academic community. Due to the incomplete financial information, the limited rationalities of investors and frictions in market transactions, the stock prices have always deviated from accounting information. The prices could not reflect the accounting information issued. This deviations are called Market Anomaly. Sloan is the first scholar who used Accrual Anomaly to explain the stock prices deviation from accounting information. Under accrual accounting system, accounting earnings are not equal to cash flow, and earnings are separated into accrual profit and cash flow. Sloan noticed that investors could not understand the earnings persistence in different parts of earnings. Sloan found that investors only pay attention to the total amount of accounting earnings, so they over-price the company’s value with higher proportion of accrual profit and under-price the company’s value with lower proportion of accrual profit. This behavior resulted the misprice in share market.This paper gives a literature review for domestic and foreign research on accrual anomaly theories, methods, and relevant empirical research. The principle of CAS has transferred from revenue-expense view to asset-liability view since2007, and the concept ’comprehensive income’ has risen in financial report in2009. Under the asset-liability view, the scale of revenue earnings has enlarged, so in this paper we replace net income by comprehensive income to represent revenue earnings. Correspondingly, the composition of revenue earnings has changed, in this paper revenue earnings are separated into three parts which include cash flow, accrual profit generated from ordinary activities, accrual profit generated from unordinary. Under asset-liability view, fair value measurement is used more often, the changes in accrual profit generated from unordinary activities have not reflected in net income, but in recorded in the comprehensive income and accounting revenue has been changed. The paper focuses on whether the differences of earnings persistence exist between the accrual profits from ordinary activities and unordinary activities and whether Chinese investors misprice the differences to conclude whether the accrual anomaly has existed in Chinese capital market. Based on the research of accrual anomaly theories and relevant empirical research, this paper gives suggestions on how to increase the efficiency of Chinese capital market.