Vendor due diligence
Advokatbyråns skadeståndsansvar gentemot köparen enligt tillitsprincipen
In line with Sloan (1996) but on European data (STOXX 600) we are investigating whether stock prices reflect information about future earnings contained in the accrual and cash flow components. The extent to which current earnings performance persists into the future earnings performance is shown to depend on the relative magnitudes of the cash and accrual components of current earnings. Moreover, we still find a significant positive excess return (Jensen?s alpha and size-adjusted return) by replicating Sloans (1996) hedge portfolio by taking a long position in the stock of firms reporting relatively low levels of accruals and a short position in the stock of firms reporting relatively high levels of accruals. However, we find no evidence of negative excess returns for companies with relatively high accruals, this somewhat lower the total excess returns for all the portfolios. We also build a modified portfolio based on the same idea but with estimated future earnings adjusted for inflation as an additional condition. We use inflation in relation to changes in estimated earnings as a simple approximation for investor?s earnings forecasts. We take a long position in stock of firms reporting relatively low level of accruals in conjunction with positive inflation adjusted change in estimated earnings. Correspondingly, we select a short position in a stock of firms reporting relatively high level of accruals along with negative inflation adjusted change in estimated earnings. We find that the modified zero-beta hedge portfolio generates significantly higher excess return (Jensen?s alpha and size-adjusted return).