The purpose of this study is to investigate whether abnormal accrual
mispricing acknowledged in accounting literature is a manifestation of
documented value-glamour anomaly in finance literature. This study
proposes the traditional value-glamour proxies (sales growth,
book-to-market, earningprice, cash flows-price, and size) and CFO/P
ratio (ratio of operating cash flows and stock price) to explain the
mispricing of abnormal accruals. Using a sample of 540 firm-year
observations of companies listed on the Jakarta Stock Exchange (JSE)
from the period of 1993 to 2003, the study finds that individually, only
either the E/P or CFO/P ratio can pick up the mispricing attributed to
abnormal accruals. These results can be interpreted as follows: (1) as
captured by E/P ratio, abnormal accrual mispricing is due to the
market’s inability to understand managers’ attempts to manage reported
earnings; (2) as captured by the CFO/P, the market is unable to assess
the persistence of cash flows. From a practical standpoint, this study
has simplified the research agenda related to asset pricing. The result
suggests that a researcher can control for the abnormal accrual
mispricing and the value-glamour anomaly parsimoniously via just one
variable, E/P ratio.