Title: Earnings expectations and accrual anomalies: reassessing stock market behaviours in the time of COVID-19
Authors: Abdullah Alawadhi
Addresses: Kuwait University, Subah Al-Salem University City, Kuwait
Abstract: The COVID-19 pandemic disrupted stock market norms, prompting a reassessment of how stock prices reflect key financial data, especially accruals and cash flows of current earnings. Using data spanning from January 2019 to June 2021, this study examines the pandemic's impact on accrual anomalies within stock prices. Despite prevailing beliefs favouring the reliability of accrual-basis accounting, our results reveal a tighter link between higher cash profits and steady earnings than with accrual profits. Surprisingly, the pandemic highlighted stock price inconsistencies, hinting at potential inefficiencies even when they are expected to perfectly capture financial distinctions. Investors, in the turmoil, remained disproportionately fixated on earnings, often overlooking the crucial differences between accrual and cash flow facets. These anomalies present potential avenues for abnormal returns. By bridging these insights, our study provides a comprehensive view of the multifaceted implications of global crises on stock price predictability and financial projections.
Keywords: COVID-19; pandemic; stock prices; earnings; accruals; cash flows; accrual anomaly; stock market; future earnings; market efficiency.
DOI: 10.1504/IJFMD.2023.139128
International Journal of Financial Markets and Derivatives, 2023 Vol.9 No.4, pp.231 - 249
Received: 12 Sep 2023
Accepted: 20 Feb 2024
Published online: 14 Jun 2024 *