The Relative Contributions of Value Relevance and Mispricing to the Pricing of Abnormal Accruals

• In Event: Market efficiency and anomalies
  In Paper Session: Market Efficiency and Anomalies

Abstract

We examine the relative contributions of mispricing and value relevance to the pricing of abnormal accruals. Unlike prior research, we provide estimates of how much of the pricing of abnormal accruals is due to value relevance and how much is due to mispricing. Our estimates suggest approximately half of abnormal accrual valuation is due to their value relevance and half is due to mispricing. However, our estimates differ considerably by time period. Before 2002, nearly two-thirds of abnormal accruals pricing is due to mispricing, and the mispricing is not limited to extreme accruals, as prior research suggests. Post-2002, mispricing largely disappears. Further, the post-2002 reduction in mispricing is partially attributable to an improvement in the quality of accruals.

Authors

• Jeremiah Green, The Pennsylvania State University

• Frank Heflin, Florida State University

• James Robert Moon, Georgia State University