Title: The association between accruals and stock return following FRS3

Authors: Javad Izadi; Alireza Nazarian; Jinfeng Ye; Ali Shahzad

Addresses: The Claude Littner Business School, University of West London, TW8 9GA, London, UK ' University of Roehampton, 232 Queen's Building, Southlands London, UK ' The Claude Littner Business School, University of West London, TW8 9GA, London, UK ' The Claude Littner Business School, University of West London, TW8 9GA, London, UK

Abstract: The purpose of this study is to investigate the correlation between accruals and stock return and further the quality of accounting accruals shown in financial statements for shareholders to predict their future returns. This study uses an inimitable location which is provided by FRS3 in the UK to highlight the well-documented accrual anomaly as important components of financial performance to help the users to understand the archived performance of a firm. Specifically, this paper focuses on the accrual anomaly phenomenon in the UK on the adoption of FRS No. 3 for a period from 2008 to 2017. Our result shows that stock returns can be predicted by accruals attributable to accounting misrepresentations. Generally, our findings support the information disclosure due to FRS No. 3. Also, the results are consistent with increased accounting disclosure to help investors protect themselves from inefficiencies and to encourage them to be aware of accurate stock prices in the market.

Keywords: accruals; stock returns; FRS No. 3.

DOI: 10.1504/IJAAPE.2019.102249

International Journal of Accounting, Auditing and Performance Evaluation, 2019 Vol.15 No.3, pp.262 - 277

Accepted: 04 Mar 2019
Published online: 12 Sep 2019 *

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