Evaluating the accrual anomaly in the Chinese stock market with the decomposition method

Abstract

ABSTRACT We evaluate the explanations for accrual anomaly in the Chinese stock market using the decomposition method. The results show that institutional ownership best explains the accrual anomaly with an explanatory power of about 46%, equity growth (EG) explains 12% of the anomaly, and the residual fraction of around 32% is unexplained by any candidate explanations. Our findings indicate that the naïve investor fixation hypothesis is favored to explain the accrual anomaly in China, and the existing explanations cannot fully explain the anomaly.