RIEB, Kobe University

Kanematsu Seminar (Jointly Supported by: TJAR Workshop)

Date&Time	Saturday, March 22, 2014, 2:30pm-
Place	RIEB Meeting Room (Annex 2nd floor)
Intended Audience	Faculty, Graduate Students and People with Equivalent Knowledge
Language	Japanese
Note	Copies of the paper are available at Office of Promoting Research Collaboration.

2:30pm-

Speaker	Hidetoshi YAMAJI
Affiliation	Reseach Institute for Economics & Business Administration, Kobe University
Topic	Neuroaccounting

4:10pm-

Speaker	Takayoshi OKABE
Affiliation	Emeritus Professor, Kobe University
Topic	Disappearance of the Accrual Anomaly and A New Approach to Track Non-persistent Component of Earnings
Abstract	According to the two component model of earnings, net income is consisted of the cash flows from operations, CFO, and the total accruals, TAC. TAC has an eminent characteristic of non-persistence in the sense that TAC tends to disappear within a relatively short period. Sloan(1996) demonstrates in his seminal paper that because the investors fail to differentiate two components of earnings in pricing, the excess stock returns will be gained by investing stocks with the extreme accruals even in the efficient market. This finding by Sloan(1996) is widely known as the accruals anomaly. Recent empirical research in the positive accounting theory shows that it is difficult to get the empirical evidence to support the existence of the accruals anomaly. Although there could be many explanations for disappearance of the accruals anomaly, it may be a common understanding that the investors come to be able to discern precisely the difference in quality of earnings contained in CFO or TAC. On the other hand, there could be a doubt if accounting academics capture the exact meanings of non-persistence of TAC component of earnings. Although some agreements exist about the temporal nature of TAC, we cannot find out accounting literature which explains fully the causes and consequences of non-persistent characteristics of TAC. It is a purpose of this study that investigates into the entire process of TAC from initiation to termination and to illuminate certain aspects by which non-persistence of TAC would be characterized. An important factor to initiate TAC is management opportunism which distorts discretionally earning number. If management chooses to bias the net realizable values of future cash flows, the intentional estimation errors initiate TAC for current period, but the same amount of TAC will be reversed through error correction mechanism of double-book keeping system in the future period. Another factor to initiate TAC is the recognition timing errors of revenue and expense which are strategically introduced by management to shift earnings between accounting periods. If the day of shipping to customers is postponed or accelerated to adjacent accounting period for the purpose of managing earnings, then the extreme amounts of TAC initiate in current year and reverse in the following years. This study presents conceptual and empirical analysis of the recognition timing errors and suggests a new approach to reveal the whole process of TAC.