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Value-glamour and accruals mispricing: One anomaly or two?

Publication ,  Journal Article
Desai, H; Rajgopal, S; Venkatachalam, M
Published in: Accounting Review
January 1, 2004

We investigate whether the accruals anomaly is a manifestation of the glamour stock phenomenon documented in the finance literature. Value (glamour) stocks, characterized by low (high) past sales growth, high (low) book-to-market (B/M), high (low) earnings-to-price (E/P), and high (low) cash flow-to-price (C/P), are known to earn positive (negative) future abnormal returns. Note that "C" or cash flow is operationalized in the finance literature as earnings adjusted for depreciation. Sloan (1996) shows that firms with low (high) total accruals earn positive (negative) future abnormal returns. We find that a new variable, operating cash flows measured as earnings adjusted for depreciation and working capital accruals, scaled by price (CFO/P) captures mispricing attributed to the four traditional value-glamour proxies and accruals. Interpretation of this finding depends on the reader's priors. If the reader believes that value-glamour phenomenon can be operationalized only as C/P, and not CFO/P, then one would conclude that CFO/P is a parsimonious variable that captures the mispricing attributes of two distinct anomalies, value glamour and accruals. However, if a reader views the value-glamour anomaly broadly as a fundamentals-to-price anomaly, then (1) the CFO/P variable can be considered an expanded value-glamour proxy and; (2) our results are consistent with Beaver's (2002) conjecture that the accruals anomaly is the glamour stock phenomenon in disguise.

Duke Scholars

Published In

Accounting Review

DOI

ISSN

0001-4826

Publication Date

January 1, 2004

Volume

79

Issue

2

Start / End Page

355 / 385

Related Subject Headings

  • Accounting
  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1501 Accounting, Auditing and Accountability
 

Citation

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Desai, H., Rajgopal, S., & Venkatachalam, M. (2004). Value-glamour and accruals mispricing: One anomaly or two? Accounting Review, 79(2), 355–385. https://doi.org/10.2308/accr.2004.79.2.355
Desai, H., S. Rajgopal, and M. Venkatachalam. “Value-glamour and accruals mispricing: One anomaly or two?Accounting Review 79, no. 2 (January 1, 2004): 355–85. https://doi.org/10.2308/accr.2004.79.2.355.
Desai H, Rajgopal S, Venkatachalam M. Value-glamour and accruals mispricing: One anomaly or two? Accounting Review. 2004 Jan 1;79(2):355–85.
Desai, H., et al. “Value-glamour and accruals mispricing: One anomaly or two?Accounting Review, vol. 79, no. 2, Jan. 2004, pp. 355–85. Scopus, doi:10.2308/accr.2004.79.2.355.
Desai H, Rajgopal S, Venkatachalam M. Value-glamour and accruals mispricing: One anomaly or two? Accounting Review. 2004 Jan 1;79(2):355–385.

Published In

Accounting Review

DOI

ISSN

0001-4826

Publication Date

January 1, 2004

Volume

79

Issue

2

Start / End Page

355 / 385

Related Subject Headings

  • Accounting
  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1501 Accounting, Auditing and Accountability