The Accrual Anomaly: International Evidence

We investigate whether the accruals anomaly (Sloan 1996), characterized by U.S. stock prices over-weighting the role of accrual persistence and under-weighting the role of operating cash flow persistence for future earnings, is a local manifestation of a global phenomenon. Hence, we examine whether stock prices in six other major capital markets and Japan) fully reflect the implications of the accrual and cash flow components of current earnings for future earnings. We find that stock prices in the U.K. and Japan exhib it under-weighting of cash flows, but there is no evidence of an over-weighting of accruals in any of the countries examined. The results suggest that the accruals anomaly may be idiosyncratic to U.S. capital markets.