Nội dung

*Title Page/Author Identifier Page/Abstract Accounting Anomalies and Fundamental Analysis: A Review of Recent Research Advances* Scott Richardson Barclays Global Investors Scott.Richardson@barclaysglobal.com İrem Tuna London Business School ituna@london.edu Peter Wysocki University of Miami School of Business Administration pwysocki@bus.miami.edu September 2009 Comments welcomed. Abstract: This paper surveys recent research advances in the areas of accounting anomalies fundamental analysis. We use investor forecasting activity as an organizing framework for the three main parts of our survey. The first part of the survey highlights recent research advances. The second part presents findings from a questionnaire given to investment professionals and academics on the topics of fundamental analysis and anomalies research. The final part outlines several new empirical techniques for evaluating accounting anomalies and suggests directions for future research. JEL classification: G12; G14; M41 Key words: Accruals; Anomalies; Forecasting; Fundamental analysis; Market efficiency; Risk *Manuscript Accounting Anomalies and Fundamental Analysis: A Review of Recent Research Advances September 2009 Abstract: This paper surveys recent research advances in the areas of accounting anomalies fundamental analysis. We use investor forecasting activity as an organizing framework for the three main parts of our survey. The first part of the survey highlights recent research advances. The second part presents findings from a questionnaire given to investment professionals and academics on the topics of fundamental analysis and anomalies research. The final part outlines several new empirical techniques for evaluating accounting anomalies and suggests directions for future research. JEL classification: G12; G14; M41 Key words: Accruals; Anomalies; Forecasting; Fundamental analysis; Market efficiency; Risk 1. Introduction Objective The editors of the Journal of Accounting and Economics gave us the assignment to review the literature on accounting anomalies and fundamental analysis. Given the existence of numerous excellent prior literature surveys of closelyrelated topics such as market anomalies, market efficiency, fundamental analysis and behavioral finance, we have constructed our literature survey to complement and fillin-the-gaps left by related literature surveys. These prior surveys include Barberis and Thaler (2003), Bauman (1996), Bernard (1989), Byrne and Brooks (2008), Damodaran (2005), Easton (2009a), Fama (1970), Fama (1991), Hirshleifer (2001), Keim and Ziemba (2000), Kothari (2001), Lee (2001), Schwert (2003), and Subrahmanyam (2007). To complement these literature surveys, we focus on research studies that: (i) have publication or distribution dates after the year 1999, (ii) examine accounting-related anomalies and fundamental analysis geared toward forecasting future earnings, cash flows and security returns, and (iii) focus on empirical research methodologies. An underlying theme of our survey is that information contained in general purpose financial reports helps investors make better portfolio allocation decisions. To this end, an investor can use information in general purpose financial reports to forecast free cash flows for the reporting entity, estimate the risk of these cash flows, and ultimately make an assessment of the intrinsic value of the firm which will be compared to observable market prices. We view this forecasting activity as the fundamental organizing principle for research on accounting anomalies and 1 fundamental analysis.1 While we recognize the co-existence of other accounting properties and objectives, we view forecasting as a powerful organizing concept for reviewing the recent literature on accounting anomalies and fundamental analysis. As part of our review, we adopt a number of complementary approaches to identify, organize and capture recent advances in this literature. The first part of our review tabulates a list of the most highly-cited research studies on accounting anomalies and fundamental analysis published or distributed since the year 2000. We also organize and categorize these highly-cited studies by identifying their common and overlapping citations to earlier papers in the literature. The second part of our survey presents results from a questionnaire of investment professionals and accounting academics about their opinions on investment anomalies and fundamental analysis and how academic research has informed investment practice. In the final part of our review, we offer suggestions for future research and draw on recent conceptual advances from both investment practice and academic research to demonstrate a more-encompassing definition and treatment of risk and transaction costs in empirical tests of equity market anomalies. Specifically, we propose a benchmark empirical model and then apply it to a case study of the relation between accruals and future stock returns for a sample of U.S. firms.2 The primary objective of our review is to produce a valuable research reference not only for academics and graduate students, but also for investment professionals. In addition, the findings from our questionnaire of investment 1 We keep the discussion of accounting anomalies and fundamental analysis distinct from each other as this is how the literature has evolved. But we note that fundamental analysis could be characterized as subsuming the accounting anomaly literature (i.e., both have primary goals of forecasting earnings and returns). 2 We choose the accruals anomaly as our case study because it is the most frequently-cited accounting anomaly over the period of our literature review. See section 2 for an analysis of citations and impact of research studies published since the year 2000. 2 professionals and academics highlight the spillovers from academic research to professional practice because, relative to other academic accounting research topics, academic research on anomalies and fundamental analysis has very direct applications and intellectual spillovers to actual practice. Accounting anomalies and fundamental analysis also have direct intellectual connections to the efficient markets and behavioral finance literatures in financial economics. Given these linkages, we now briefly summarize the coverage of prior related literature surveys in accounting and finance. Coverage of previous literature surveys Literature reviews of the academic literature on efficient markets have origins going back to Fama (1970). Given that financial market anomalies and market efficiency are two sides of single intellectual debate, prior surveys attempt to capture the tensions in this debate and give insights about the extent to which markets are informationally efficient (see, for example Kothari, 2001 and Lee, 2001). Surveys that summarize the literature in the 1980‟s and 1990‟s include Keim and Ziemba (2000), Hirshleifer (2001), Barberis and Thaler (2003), and Schwert (2003). More recent surveys that focus on papers in the finance literature include Subrahmanyam (2007), and Byrne and Brooks (2008). These surveys cover issues related to market efficiency, technical, fundamental and event-driven anomalies, and the now maturing field of behavioral finance. Papers that review the literature on accounting-based anomalies and fundamental analysis include Bauman‟s (1996) survey of the fundamental analysis literature up to the mid-1990‟s and Kothari‟s (2001) broad survey of capital markets research in accounting (with a related discussion by Lee, 2001). While exhaustive at the time, Kothari (2001) and Lee (2001) cover the literature only up to the year 2000. Recent surveys by Damodaran (2005) and Ohlson 3 (2009) provide insightful technical overviews of finance and accounting valuation models. Similarly, Easton (2009) provides a literature review of and applications of implied cost of capital methods which have strong foundations in fundamental analysis. Below we present summary statistics of the coverage and focus of prior related surveys to provide a perspective on the coverage (or lack thereof) of this broad literature. Bauman (Journal of Accounting Literature, 1996) provides a focused overview of fundamental analysis research in accounting. He covers 66 papers that were published between 1938 and 1997 and 40 of these papers were published in academic accounting journals (including 11 papers from the Journal of Accounting Research, 9 papers from The Accounting Review, and 4 papers from the Journal of Accounting and Economics). Bauman (1996) does not focus on research related to financial market anomalies. Hirshleifer (Journal of Finance, 2001) provides a survey of research on investor psychology and asset pricing. He broadly covers 543 papers published up to the year 2001. Many “behavioral finance” papers began to be published around this time and 110 of the papers covered in his survey were either published or distributed in the years 2000 and 2001. Understandably, the vast majority of the papers in this survey are drawn from finance, economics and psychology journals. Fewer than 10 papers in the survey are from accounting journals. Fundamental analysis and other accounting-related topics with possible behavioral foundations are not highlighted in this survey. Schwert (Handbook of the Economics of Finance, 2003) surveys the finance literature on anomalies and market efficiency. He covers 107 papers published in finance and economics journals between 1933-2003, including 23 papers that were 4 published or distributed between 2000 and 2003. No accounting papers are included in the survey. In the same handbook, Barberis and Thaler (2003) survey the behavioral finance literature. They cover 204 papers between 1933-2003, including 66 papers published between 2000 and 2004. They only mention one paper published in an accounting journal (Bernard and Thomas, 1989). Subrahmanyam (European Financial Management, 2007) provides a review and synthesis of the behavioral finance literature. He reviews 155 papers published between the years 1979 and 2007, with the majority of the papers published in the year 2000 or later. The vast majority of the surveyed papers come from finance journals and only one cited working paper was eventually published in an accounting journal. Finally, Byrne and Brooks (Research Foundation of CFA Institute Monograph, 2008) provide a practitioner-focused survey of the current state of the art theories and evidence in behavioral finance. They review 79 papers published between the years 1979 and 2008, with the majority of the papers published in the year 2000 or later. They include 33 papers published in the Journal of Finance and 7 papers published in either the Journal of Financial Economics or the Review of Financial Studies. Only 1 reviewed paper come from an accounting journal (Journal of Accounting and Economics). A quick scan of these survey papers reveals where and when the prior surveys captured innovations in the literature. While Kothari (2001) and Lee (2001) provide an excellent coverage of research on anomalies and fundamental analysis in the accounting literature up until the year 2001, no survey covers papers in the accounting literature after that year. Furthermore, recent finance surveys on anomalies focus almost exclusively on behavioral finance and do not cover accounting anomalies or 5 fundamental analysis. Therefore, one of the goals of our survey is to “fill in” some of the gaps of prior literature surveys and capture research innovations since the year 2000. What we don’t cover Our survey focuses on empirical research on accounting anomalies and fundamental analysis. However, empirical research is (or should be) informed by theory, since interpretation of empirical analysis is impossible without theoretical guidance. As we stated above, we do not review in detail papers already covered in prior surveys (especially papers published prior to the year 2000). In addition, within the empirical capital markets area, there are concurrent Journal of Accounting and Economics survey papers that may overlap with some of the topics covered in our survey [see, for example, Beyer, Cohen, Lys and Walther (Corporate Information Environment, 2009), and Dechow, Ge and Schrand (Earnings Quality and Earnings Management, 2009). Accordingly, we do not discuss in detail research papers in these areas, although we do reference them. Summary of main observations Our first major observation is based on a citation analysis of recent published and working papers on accounting anomalies and fundamental analysis. This citation analysis lets the “academic research market speak” on which research papers on accounting anomalies and fundamental analysis have attracted the attention of other researchers and have had a meaningful impact on the subsequent literature. While many of the most highly-cited papers are from finance journals, there are some very influential papers from accounting journals that are broadly cited in both accounting and finance journals (see, for example, Xie, 2001, and Richardson, Sloan, Soliman and Tuna, 2005). 6 Our second major observation is based on a complementary citation analysis that helps us organize the literature on accounting anomalies and fundamental analysis. Specifically, we analyze papers written or published since the year 2000 to identify common references of prior published research studies. This approach allows us to identify common themes or clusters of research topics. Our analysis reveals four main clusters of overlapping citations to common sets of prior papers. We apply the following labels to the four clusters of research papers: Fundamental Analysis, Accruals Anomaly (including related investment anomalies), Underreaction to Accounting Information (including PEAD and other forms of momentum), and Pricing Multiples and Value Anomaly. These four main clusters largely span the literature. The Fundamental Analysis cluster cites a number of prior foundational papers including Abarbanell and Bushee (1997 and 1998) and Feltham and Ohlson (1995). The citation foundation of the Accruals Anomaly cluster is based on the numerous citations to Sloan (1996) as the underlying prior research study that binds together this research cluster. The Underreaction to Accounting Information cluster most often cites Bernard and Thomas (1989, 1990), Foster, Olsen and Shevlin (1984), and Jegadeesh and Titman (1993) as foundational papers. The Pricing Multiples and Value Anomalies cluster is bound together by references to the foundational papers of Basu (1977), Reinganum (1981), Ball (1992), and Fama and French (1993 and 1995). We then use our forecasting framework to categorize, evaluate and discuss some of the main research advances since the year 2000 in each of the four research clusters. Our framework attempts to provide some unifying structure to the burgeoning empirical literature on accounting anomalies. We highlight that many of the anomalies are not unique and, in many cases, the apparent excess returns to a “new” anomaly are subsumed by other existing anomalies (see, for example, Dechow, 7 Richardson and Slaon, 2008, who document that the general accruals anomaly subsumes the external financing anomaly). We also explore why and how the anomalies persist in competitive markets, the robustness of the anomalies, and whether the observed returns are due to risk or mispricing. Our third major observation arises from a questionnaire we distributed to investment professionals (based on a survey of a subset of CFA members) and to accounting academics who teach and undertake research related to financial analysis. The questionnaire attempts to capture the important opinions of the creators and users of research on accounting anomalies and fundamental analysis. The findings suggest that many of the conventions and techniques used in academic research differ from those in the investment community. For example, in contrast to most empirical academic studies that use either the CAPM or the Fama-French 3-factor model for risk calibration, most survey respondents used other types of models. On the other hand, practitioners appear to have a robust interest in and demand for new academic research on fundamental analysis and anomalies. Interestingly, most respondents claimed that earnings or cash flow momentum has proven to be a successful active investment strategy in recent years while “accounting quality” has received less attention. Respondents also tend to use a range of fundamental valuation and analysis techniques in their work (including earnings multiples, book value multiples, cash flow multiples, and discounted free cash flow models Interestingly, only a small fraction of respondents frequently used residual income (economic profit) models for valuation. The survey respondents also indicated that they get most of their research insights from practitioner journals such as CFA Magazine, Financial Analysts Journal, and Journal of Portfolio Management, rather than academic publications such as the 8