Accrual Effect on Karachi Stock Exchange

Abstract

The study examine whether the stock prices can reflect the information of future earnings contained in the accrual components of the current period. The magnitude of accruals component determines the extent to which the current earnings performance persists in the future. However, the current earnings show that the investors hardly reflect the information contained in the accruals components. All listed and non-listed companies (662) on Karachi Stock Exchange, form January 1993 to December 2015 are incorporated in the study. The study concluded that accruals anomaly does not exist in the Karachi Stock Exchange. Which implies that an investor who follows an investment strategy on the basis of accruals will not earn excess returns. Moreover, it implies the Capital Asset Pricing Model is a valid model to capture the effect of accruals.