Consistent with the implications of conditional conservatism, we show that the differential persistence of cash flows relative to that of accruals is higher across loss firms than profit firms. Further, we find that the positive relation of cash flows with future returns is more severe in loss...

We study return predictability attributable to bloated balance sheets in European capital markets and find that the NOA anomaly is more severe across loss years and is significantly attenuated across profit years. A hedge trading strategy on NOA for loss firms generate large raw and abnormal...