The Reason Of Accrual Anomaly In Chinese Stock Market

Effectiveness research of capital market has always been a classic topic in financial academic field. Although our country’s capital market started late and developed slowly, researcher, policymaking authorities and investors are all pay close attention to its operation efficiency. With the development of economy and company management activities, relevant department has modified our company accounting standards, accounting policy, investment and financing policies several times. As time went on, our country’s capital market operation efficiency has been improved. However, different countries’ scholars made research on their own capital market these years and found that there are several mispricing phenomena in different capital markets. Those abnormal phenomena are related to company accounting information, so the researcher called it as accrual anomaly. The accrual anomaly can not only deny the market efficiency, but also make investors to doubt the usefulness of accounting information. Its cause extensive concern and discussion of academic field.Sloan(1996) found accrual anomaly firstly. He used regression analysis to find that the compositions of company earnings are accruals and cash flow, and those two parts have different persistence. When investors use the earnings information to make choices, they always pay attention to the whole earnings and ignore the different predictability of two compositions. Then they make wrong judgment. Therefore, smart investors can earn abnormal returns through investment portfolio based on accruals. After Sloan(1996), the subsequent scholars are nearly all in accordance with Sloan’s thoughts and follow his method, they research this market anomaly from the view of investor irrational. From 2007, some researchers has come up with the new idea that company accruals are relevant to investment, however, they could not explain the reason of accrual anomaly if they out of the premise of investor irrational.Under this research background, this paper is going to study the reason of accrual anomaly in our capital market based on the relationship between accruals and corporate investment. We choose the non-financial and non-ST listed company in our A share market from 2010 to 2014 as research objects.The empirical result told us: the accrual anomaly is existed in our stock market. Whatever we use which accrual variable to measure company accrual, the company accrual has a significantly negative effect on the corporate stock year-cumulative abnormal returns. Use accruals to construct investment portfolio can earn abnormal returns too. Furthermore, we split companies to ten combinations in each year through accrual variables, then we use combination time series regression method to prove that adding the investment factor into pricing equations such as CAPM and Fama-French three-factor regression should reduce the magnitude of abnormal returns acquired by investment portfolio. In other words, we can reduce the accrual anomaly through controlling the investment. In order to provide more rigorous evidence, we make an in-depth analysis of accrual compositions and find that the composition which has a strong correlation with investment can cause accrual anomaly. Similarly, the magnitude of abnormal returns reduced when we control the investment.Therefore, we can make a conclusion that the accrual anomaly in our stock market is related to corporate investment. We can control the investment to reduce accrual anomaly. This study not only enriches our stock market’s explanation of accrual anomaly, but also provides more empirical evidence, then makes the prospect for future research.