Analysis of Risk and Mispricing Hypotheses of Accruals: Evidence from Brazil

We used a sample of non-financial companies listed in B3. To reach the objective, the portfolio methodology, asset pricing models were used, and two-stage cross-sectional regression (2SCSR) was used to test risk and mispricing hypotheses.

Findings:

The results obtained showed evidence of the accruals anomaly for the companies classified as small and that the evidence is stronger when evaluating the discretionary component. The two-stage cross-sectional regression analysis did not show that accruals represent a risk factor, suggesting that the evidence of anomaly obtained for discretionary accruals is caused by mispricing.

Originality/value:

Non-rejection of the accruals' mispricing assumption leads to the conclusion that stock prices of small firms are influenced by the accounting results disclosed and that managers, by having capital market and profit incentives related, can use accounting choices opportunists with the motivation to maximize their expected utility, that is, to influence the price of shares through the distortions in profits.

Keywords:
Accruals; Mispricing; Risk Factor

Fundação Escola de Comércio Álvares Penteado Fundação Escola de Comércio Álvares Penteado, Av. da Liberdade, 532, 01.502-001 , São Paulo, SP, Brasil , (+55 11) 3272-2340 , (+55 11) 3272-2302, (+55 11) 3272-2302 - São Paulo - SP - Brazil
E-mail: rbgn@fecap.br

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[1] 1
. Vinícius Gomes Martins, Doctor in Accounting, Federal university of Pernanbuco. E-mail: viniciuscontabeis@hotmail.com

Contribution	Vinícius Gomes Martins	Paulo Aguiar do Monte	Márcio André Veras Machado
1. Definition of research problem	√	√	√
2. Development of hypotheses or research questions ( empirical studies )	√
3. Development of theoretical propositions ( theoretical Work )
4. Theoretical foundation/ Literature review	√
5. Definition of methodological procedures	√	√	√
6. Data collection	√
7. Statistical analysis	√	√	√
8. Analysis and interpretation of data	√	√	√
9. Critical revision of the manuscript	√	√	√
10. Manuscript Writing	√	√
11. Other (please specify which)

Panel A - Returns without controlling for risk factors
Accruals	Size	Portfolio distribution					Spread
Accruals	Size	High (C1)	C2	C3	C4	Low (C5)
Total	All	-0.011	-0.002	0.001	-0.009	0.007	0.018
Total	Big	-0.002	0.005	0.010	0.001	0.003	0.092
Discretionary	Small	-0.008	0.005	-0.008	0.001	0.028**	0.065*
	All	-0.011	-0.013	0.001	0.001	0.008	0.019
	Big	-0.003	-0.005	0.009	0.010	0.002	0.005
	Small	-0.007	-0.014	0.004	0.019**	0.025*	0.082*
Panel B - Returns when controlling for risk factor
Accruals	Size	Portfolio distribution					Spread
Accruals	Size	High (C1)	C2	C3	C4	Low (C5)
Total	All	-0.005	0.001	0.003	-0.002	0.001	0.018
Total	Big	0.002	0.008*	0.011*	-0.006	0.012	0.092
Discretionary	Small	0.018	0.018**	0.006	0.005	0.019*	0.065*
	All	-0.004	-0.011**	0.001	0.002	0.006	0.019
	Big	0.004	-0.002	0.008	0.011***	0.016*	0.005
	Small	-0.002	-0.016	0.018***	0.005	0.019**	0.082*

Description	All Companies
	Total Accruals		Discretionary Accruals
	Coefficient	p-value	Coefficient	p-value
Size	0.001	0.597	0.000	0.398
Book-to-market	-0.082	0.000	-0.079	0.000
Time	0.615	0.000	0.625	0.000
Liquidity	-0.001	0.514	-0.001	0.314
Total Accruals	0.001	0.222	-	-
Discretionary Accruals	-	-	-0.029	0.000
Constant	-0.025	0.376	-0.033	0.295
Adjusted R²	0.387		0.407
F test	0.000		0.000
Ramsey RESET^a	0.564		0.453
Durbin-Watson^b	2.004		1.897
White test^c	0.000		0.000
Jarque-Bera^d	0.000		0.000
Observations	478		478

Accruals		Risk factor premium						R² Adjust.
Accruals		λ	λ1	λ2	λ3	λ4	λ5
Total	Coeff.	0.019	-0.024	-0.013	-0.011	0.005	-0.007	0.686
Total	Shanken t	2.547***	-2.800***	-2.337***	-2.130**	0.968	-3.017***	0.686
Discretionary	Coeff.	0.015	-0.022	-0.010	-0.013	0.007	-0.004	0.586
Discretionary	Shanken t	1.579*	-2.649***	-2.052**	-2.748***	1.712**	-0.878	0.586