CAN MISPRICING OF ASSET GROWTH EXPLAIN THE ACCRUALS ANOMALY?

Recent research suggests that the mispricing of asset growth can explain the accruals anomaly. We reexamine this issue by focusing on the role of accounting manipulations in stock mispricing. Specifically, we hypothesize that accounting manipulations are at the root of the accruals anomaly but play an insignificant role in the asset growth anomaly. Our large sample results strongly support our hypothesis, suggesting that investors can benefit from exploiting both anomalies instead of one.