Is Accruals Quality a Priced Risk Factor?

Posted: 23 Aug 2007 Last revised: 23 Jan 2012

See all articles by John E. Core

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Wayne R. Guay

University of Pennsylvania - Accounting Department

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

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Abstract

In a recent and influential empirical paper, Francis, LaFond, Olsson, and Schipper (2005) conclude that accruals quality (AQ) is a priced risk factor. We explain that FLOS' regressions examining a contemporaneous relation between excess returns and factor returns do not test the hypothesis that AQ is a priced risk factor. We conduct appropriate asset-pricing tests for determining whether a potential risk factor explains expected returns, and find no evidence that AQ is a priced risk factor.

Keywords: Asset-pricing tests, Accruals quality, Information risk, Portfolio theory and diversification

JEL Classification: D80, G11, G12, M41, M43

Suggested Citation

Core, John E. and Guay, Wayne R. and Verdi, Rodrigo S., Is Accruals Quality a Priced Risk Factor?. Journal of Accounting & Economics (JAE), Vol. 46, No. 1, pp. 2-22, 2008, Available at SSRN: https://ssrn.com/abstract=1007145

John E. Core (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Wayne R. Guay

University of Pennsylvania - Accounting Department ( email )

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Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
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