ACCRUALS QUALITY, STOCK RETURNS AND INFORMATION RISK: EVIDENCE FROM VIETNAM*

Abstract

Prior studies on whether information risk is relevant for asset pricing have mixed findings across different countries. This study aims to re-examine this risk in an emerging market such as Vietnam. Using data from two stock exchanges in Vietnam, we investigate (1) if there are evidence of mispricing among accrual quality (AQ) portfolios and (2) whether the AQ factor is useful in explaining the time series portfolio returns. We further examine whether AQ measured by innate accruals and discretionary accruals is a priced risk factor by using the two-stage cross-sectional model suggested by Core et al. (2008). Our findings demonstrate that AQ does explain the time-series variation in returns of 06 size-BM portfolios, and AQ portfolios are overpriced in the Vietnamese stock market. However, we find no evidence that AQ is a priced risk factor in such inefficient Vietnamese. This might be because unprofessional investors are unaware of earnings management embedded in each component of AQ and the lack of transparency in the equity market.