An Examination of the Naive-Investor Hypothesis in Accruals Mispricing in Tunisian Firms

Journal of International Financial Management & Accounting (Impact Factor: 0.33). 05/2011; 22(2). DOI: 10.1111/j.1467-646X.2011.01048.x


This study extends previous studies on accrual anomaly to investigate the emerging market's mispricing of accruals. Using Mishkin (1983) test, hedge portfolio test and Fama and MacBeth (1973) regression, we test whether the Tunisian Stock Exchange price rationally reflects the 1-year ahead earnings implications of its earnings components. We find that earnings and their cash flow and accrual components are not rationally priced by the market. Additionally, this paper examines the role of sophistication investors in the pricing of earnings and their components. Our results show that accruals for firms with higher level of institutional ownership are not mispriced, while accruals for firms with lower institutional ownership are overpriced significantly by the market.

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Available from: Imen Khanchel El Mehdi, Feb 28, 2014
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    • "On the other hand, Leippold and Lohre (2012) demonstrate the existence of the accrual anomaly in both common law (Australia, Canada, Hong Kong, Ireland, Thailand, the U.K., the U.S.) and code law countries (Denmark, France, Germany, Italy, Japan, and Switzerland). There are also studies examining whether the accruals anomaly appears in developed and developing countries (Clinch, Fuller, Govendir, & Wells, 2012; Dimitropoulos & Asteriou, 2009; Fazeli & Aflatooni, 2010; Kaserer & Klingler, 2008; Khanchel El Mehdi, 2011; Koerniadi & Tourani-Rad, 2007; Sehgal, Subramaniam, & Deisting, 2012; Soares & Stark, 2009; Vivattanachang & Supattarakul, 2013). Çelik, € Ozkan, and Akarım (2013) claim the existence of accrual anomaly in the Turkish stock market by using data from 131 manufacturing firms between the years of 1998e2010. "
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    ABSTRACT: In this study, we seek to answer whether stock prices fully reflect information in accruals and cash flows about future earnings. Following prior research, we perform Mishkin test and hedge portfolio analysis. The results based on full sample do not indicate mispricing in the components of earnings on Borsa Istanbul. When we exclude loss firms from the full sample, mispricing of total accruals and its components, and thus the presence of accrual anomaly on Borsa Istanbul, is revealed. Using trading strategy based on total accruals of profit firms, investors may generate abnormal returns of 18.58%. These results may suggest that Borsa Istanbul is not efficient in semi-strong form.
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