Percent accruals and the accrual anomaly: Korean evidence

Young Jun Kim, Jung Hoon Kim, Sewon Kwon, Su Jeong Lee

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


Prior studies provide mixed evidence about whether the accrual anomaly exists in the Korean stock market. We seek to reconcile the mixed evidence by applying a different measure of accruals-accruals scaled by earnings (percent accruals)-in comparison to accruals scaled by total assets (traditional accruals). Based on 9399 firm-year observations for the 1994-2010 period, we find evidence of the accrual anomaly in the Korean stock market when using percent accruals but not when using traditional accruals. Of particular note is that when firms are sorted by traditional accruals, the lowest accrual decile includes firms with low cash flows, which leads to low returns that eliminate the abnormal returns of the accruals-based trading strategy. This also occurs when we use other firm-size proxies to deflate accruals. In contrast, when using percent accruals we find consistent evidence that the accrual anomaly exists regardless of research design specifications or sample selection criteria. Our findings suggest that percent accruals are a useful alternative to traditional accruals, especially in markets where the lowest traditional accrual decile exhibits very low returns.

Original languageEnglish
Pages (from-to)340-366
Number of pages27
JournalPacific Basin Finance Journal
StatePublished - 1 Nov 2015

Bibliographical note

Funding Information:
We are grateful for the comments and suggestions of an anonymous reviewer, Balasingham Balachandran (the guest editor), Lee-Seok Hwang, and Stephen Taylor. We also thank seminar participants at Seoul National University and the 5th FMCGC. This paper was awarded the best paper for financial accounting at the 5th FMCGC. This work was supported by Hankuk University of Foreign Studies Research Fund of 2015. All errors are our own.

Publisher Copyright:
© 2015 Elsevier B.V.


  • Accrual anomaly
  • Earnings fixation hypothesis
  • Korean stock market


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