Investment Efficiency,the Accrualsand Accruals Anomaly

Since put forward by Fama(1965), capital market efficiency theory has always been the essential theoretical foundation of other theories, however, which was questioned after 1980 s. The vast majority of prior literatures showed that investors can get excess returns through accounting information. Sloan(1996)use accruals anomaly to explain the deviation of the stock prices and accounting information, which is caused by the persistence of earnings. While researchers agree that the accrual anomaly exists, consensus on its interpretation has been elusive. Research is divided into two broad streams: the stream that attributes the anomaly to accounting distortions and the stream that attributes the anomaly to growth-related factors. The capital market’s development is still in the early stage in our country, on the one hand, the supervision system and measures is still to improve, the accounting information distortion problem is still outstanding; on the other hand, in the system environment where investor protection is still weaker, enterprise investment expansion behavior lack the constraints. We want to test that in the two streams, which can explain the accruals anomaly better in the capital market of China? whether investment efficiency aggravates the two factors’ role to explain the accruals anomaly.This report reviews related researches globally towards the existence and causes of accruals anomaly, the relationship between accounting and accruals anomaly, and the relationship between growth and accruals anomaly, and then provide related research hypotheses to several theories, such as behavioral finance theory, asymmetric information theory, diminishing marginal returns of investment theory and so on. The research is based on financial information and data from 2009 to 2014. Empirical analysis has three parts, which first include exam the existence of accruals anomaly using Richardson(2006)Model; And then find out the main cause of accruals anomaly between accounting distortions and growth; finally, we divided the all companies into two groups by investment efficiency, and to find the difference in accounting for accruals anomaly.The research reports that,(1)In China’s capital market, after controlling the total surplus of the current period, market overestimate the accruals’ persistent;(2)Then we decompose accruals into ‘growth’ and ‘efficiency’ components, and find that both components of accruals contribute to the lower persistence, with the efficiency component having the strongest relation; The market overestimate the both components of accruals’ persistence, with the growth component having the strongest effect on accruals anomaly;(3)When the companies were overinvestment, Compared with efficiency components, the growth component had the strongest relation in contributing to the lower persistence; The market only overestimated the growth component’s persistence. When the companies were underinvestment, it was just that efficiency components cause the persistence of accruals; The market overestimated the both components of accruals’ persistence, with the growth component more significant;(4)The market overestimated the growth component of accruals’ persistence, Which is more significant in the companies who were underinvestment.In this paper, the research shows that investors are not completely locked in accounting surplus, they can distinguish the differences of the quality of accounting information, also able to identify the accruals’ persistence related to growth-related factors surplus. The inspiration s is followed:(1)enterprises should improve the quality of accounting information to avoid the mispricing of the enterprise value by investors;(2)the investors should be more rational to high-growth enterprises, to prevent mispricing to growth;(3)For example, for overinvestment companies, regulators should pay more attention to the investment diminishing marginal effect on the efficiency of the capital market. For the underinvestment companies, regulators should pay more attention to the manipulation of accounting information.