Percent Accruals versus Traditional Accruals: Exploring Subject in Tehran Securities Exchange

In this research, we study how the effectiveness of an accruals–based trading strategy changeswith the benchmark used to identify an extreme accrual. We measure “Percent Accruals” as accruals scaled by earnings, rather than total assets, and show that this seemingly small change produces a radically different sort of data. We find that a trading strategy based on percent accruals yields significantly larger annual hedge returns than the traditional accruals measure, and does so mostly by improving the long position in low accrual stocks. As such, our results are consistent with the earning fixation hypothesis and are consistent with some alternative explanations for the accrual anomaly. The result is a sample of 128 firms listed in Tehran Securities Exchange between 2001 2010.