Accounting Information Quality, Stock Returns, And Macroeconomic Conditions
This paper reexamines whether accounting information quality proxied by Accruals Quality (AQ) is priced. In two-stage cross-sectional regression tests, the authors find that the AQ risk factor is statistically and economically priced after the exclusion of low-priced stocks. Their results are robust to various approaches of portfolio formations and beta estimations. Since the market capitalization of low-priced stocks is only two percent of that of non-low-priced stocks, these findings suggests that AQ is priced in most stocks in terms of market capitalization.