Does Investors' Sophistication Affect Persistence and Pricing of Discretionary Accruals?

Review of Pacific Basin Financial Markets and Policies (RPBFMP) 01/2007; 10(01):33-50. DOI: 10.1142/S0219091507000945
Source: RePEc

ABSTRACT This paper examines whether the sophistication of market investors influences management's strategy on discretionary accounting choice, and thus changes the persistence of discretionary accruals. The results show that the persistence of discretionary accruals for firms face with naive investors is lower than that for firms face with sophisticated investors. The results also demonstrate that sophisticated investors indeed incorporate the implications of current earnings components into future earnings in a more sufficient manner than naïve investors do.

  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: The main purpose of the paper is to investigate the market valuation of accounting information in the European banking industry before and after the adoption of IFRS, the latest version of International Accounting Standards. In a value relevance framework, we apply panel methods to a multiplicative interaction model, in which the partial effects of earnings and book value on share prices are conditional on the adoption of IFRS. According to our evidence, the IFRS introduction enhanced the information content of both earnings and book value for more transparent banks. By contrast, less transparent entities did not experience significant increase in the value relevance of book value. KeywordsValue-relevance–Accounting information–IFRS/IAS–Information efficiency
    Review of Quantitative Finance and Accounting 36(3):437-457.


Available from