Table 2 Stock liquidity and the accrual...

Table 2

Stock liquidity and the accrual anomaly

Panel A: The regression approach
Dependent variable: RET_t+1
Variable	Coeff.	t-stat	Coeff.	t-stat
MC_t	−0.015^**	−7.73	−0.011^**	−4.67
B/M_t	0.051^**	10.72	0.052^**	10.87
MOM_t	−0.037^**	−5.54	−0.038^**	−5.63
D_NS_t	−0.026^**	−2.93	−0.029^**	−3.19
NS_t	−0.096^**	−5.38	−0.096^**	−5.38
dA/A_t	−0.101^**	−5.61	−0.100^**	−5.54
D_Y/B_t	0.017^†	1.82	0.014	1.53
Y/B(+)_t	0.254^**	4.52	0.263^**	4.66
ACC_t	−0.196^**	−7.66	−0.176^**	−7.28
LIQ_HL_t			−0.016^**	−3.17
ACC_t × LIQ_HL_t			0.066^**	3.01
Year fixed effects	Yes		Yes
Industry fixed effects	Yes		Yes
N	79,994		79,994
R²	0.121		0.121

Panel A: The regression approach
Dependent variable: RET_t+1
Variable	Coeff.	t-stat	Coeff.	t-stat
MC_t	−0.015^**	−7.73	−0.011^**	−4.67
B/M_t	0.051^**	10.72	0.052^**	10.87
MOM_t	−0.037^**	−5.54	−0.038^**	−5.63
D_NS_t	−0.026^**	−2.93	−0.029^**	−3.19
NS_t	−0.096^**	−5.38	−0.096^**	−5.38
dA/A_t	−0.101^**	−5.61	−0.100^**	−5.54
D_Y/B_t	0.017^†	1.82	0.014	1.53
Y/B(+)_t	0.254^**	4.52	0.263^**	4.66
ACC_t	−0.196^**	−7.66	−0.176^**	−7.28
LIQ_HL_t			−0.016^**	−3.17
ACC_t × LIQ_HL_t			0.066^**	3.01
Year fixed effects	Yes		Yes
Industry fixed effects	Yes		Yes
N	79,994		79,994
R²	0.121		0.121

Panel B: The sorts approach
Accruals (ACC_t)	Mean of equal-weighted ARET_t+1				t-stat
	(MEWARET)				t-stat
	Liquidity (LIQ_HL_t)				Liquidity (LIQ_HL_t)
	L	2	3	H	L	2	3	H
Low – accruals	15.68	3.53	2.89	2.95	3.31	1.98	1.50	1.72
2	12.23	5.92	4.76	3.58	3.12	4.05	3.94	3.66
3	7.45	1.36	3.84	0.75	2.81	1.18	2.97	0.67
4	6.86	2.06	2.00	0.46	2.46	1.49	2.20	0.57
5	5.70	3.33	1.92	0.42	2.57	2.32	1.57	0.39
6	4.56	−0.22	0.15	−0.32	1.30	−0.15	0.18	−0.31
7	2.24	−1.96	−0.74	−1.34	0.73	−1.48	−0.63	−1.37
8	0.18	−3.02	−1.75	−1.53	0.07	−2.09	−1.73	−1.39
9	−0.56	−2.20	−3.24	−2.55	−0.24	−1.36	−2.90	−2.29
High – accruals	−4.05	−7.89	−5.80	−3.77	−1.77	−3.20	−3.78	−2.13
L−H	19.73	11.42	8.69	6.72	3.75	3.76	3.53	2.72
	Mean of Absolute MEWARET				SD of Absolute MEWARET
	5.95	3.15	2.71	1.76	4.93	2.25	1.76	1.34

Panel B: The sorts approach
Accruals (ACC_t)	Mean of equal-weighted ARET_t+1				t-stat
	(MEWARET)				t-stat
	Liquidity (LIQ_HL_t)				Liquidity (LIQ_HL_t)
	L	2	3	H	L	2	3	H
Low – accruals	15.68	3.53	2.89	2.95	3.31	1.98	1.50	1.72
2	12.23	5.92	4.76	3.58	3.12	4.05	3.94	3.66
3	7.45	1.36	3.84	0.75	2.81	1.18	2.97	0.67
4	6.86	2.06	2.00	0.46	2.46	1.49	2.20	0.57
5	5.70	3.33	1.92	0.42	2.57	2.32	1.57	0.39
6	4.56	−0.22	0.15	−0.32	1.30	−0.15	0.18	−0.31
7	2.24	−1.96	−0.74	−1.34	0.73	−1.48	−0.63	−1.37
8	0.18	−3.02	−1.75	−1.53	0.07	−2.09	−1.73	−1.39
9	−0.56	−2.20	−3.24	−2.55	−0.24	−1.36	−2.90	−2.29
High – accruals	−4.05	−7.89	−5.80	−3.77	−1.77	−3.20	−3.78	−2.13
L−H	19.73	11.42	8.69	6.72	3.75	3.76	3.53	2.72
	Mean of Absolute MEWARET				SD of Absolute MEWARET
	5.95	3.15	2.71	1.76	4.93	2.25	1.76	1.34

Panel C: The alpha approach
Accruals (ACC_t)	α_p				t-stat
	Liquidity (LIQ_HL_t)				Liquidity (LIQ_HL_t)
	L	2	3	H	L	2	3	H
Low – accruals	1.68	0.67	0.49	0.21	6.64	4.10	3.62	1.83
2	1.30	0.65	0.49	0.43	5.03	3.84	4.66	4.79
3	1.06	0.38	0.41	0.28	4.97	2.98	4.94	4.12
4	0.85	0.30	0.33	0.21	4.15	3.14	3.57	2.79
5	0.81	0.40	0.28	0.20	3.94	3.70	2.91	2.81
6	0.48	0.25	0.14	0.06	2.38	2.12	1.61	0.87
7	0.43	0.14	0.05	−0.04	2.28	1.18	0.55	−0.42
8	0.36	0.00	−0.05	−0.09	1.72	0.03	−0.50	−0.88
9	0.19	−0.10	−0.29	−0.18	0.86	−0.66	−2.77	−1.74
High – accruals	−0.19	−0.66	−0.54	−0.31	−0.61	−3.51	−3.98	−2.14
α_L−α_H	1.87	1.33	1.03	0.52	4.67	5.34	5.37	2.81
	Mean of Absolute α_p				SD of Absolute α_p
	0.73	0.36	0.31	0.20	0.50	0.24	0.18	0.12

Panel C: The alpha approach
Accruals (ACC_t)	α_p				t-stat
	Liquidity (LIQ_HL_t)				Liquidity (LIQ_HL_t)
	L	2	3	H	L	2	3	H
Low – accruals	1.68	0.67	0.49	0.21	6.64	4.10	3.62	1.83
2	1.30	0.65	0.49	0.43	5.03	3.84	4.66	4.79
3	1.06	0.38	0.41	0.28	4.97	2.98	4.94	4.12
4	0.85	0.30	0.33	0.21	4.15	3.14	3.57	2.79
5	0.81	0.40	0.28	0.20	3.94	3.70	2.91	2.81
6	0.48	0.25	0.14	0.06	2.38	2.12	1.61	0.87
7	0.43	0.14	0.05	−0.04	2.28	1.18	0.55	−0.42
8	0.36	0.00	−0.05	−0.09	1.72	0.03	−0.50	−0.88
9	0.19	−0.10	−0.29	−0.18	0.86	−0.66	−2.77	−1.74
High – accruals	−0.19	−0.66	−0.54	−0.31	−0.61	−3.51	−3.98	−2.14
α_L−α_H	1.87	1.33	1.03	0.52	4.67	5.34	5.37	2.81
	Mean of Absolute α_p				SD of Absolute α_p
	0.73	0.36	0.31	0.20	0.50	0.24	0.18	0.12

Note(s): This table reports results from the regression, the sorts, and the alpha approaches to testing the effect of stock liquidity on the relation between accruals and future stock returns. Panel A reports results from the regression approach. The regression model extends the one used in Fama and French (2008) by including industry and year fixed effects, stock liquidity and the interaction term between stock liquidity and accruals. In Panel A, t-statistics are calculated by using cluster-robust standard errors clustered on firms. Panel B reports results from the sorts approach. ARET_t+1 is the abnormal annual stock return that cumulates over a 12-month period starting from the fourth month after the end of fiscal year t. To compute ARET_t+1 we follow the characteristic-based portfolio matching procedure proposed in Daniel et al. (1997) to adjust annual stock returns. MEWARET is the equal-weighted average of abnormal annual stock returns. Panel C reports results from the alpha approach. In Panel C, t-statistics are calculated by using standard errors adjusted for Newey–West autocorrelations of three lags

**, *, and † denote statistical significance at the 1%, 5%, and 10% levels, respectively, using a 2-tailed test

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