Earnings Volatility, Cash Flow Volatility, and Informed Trading
AbstractABSTRACT I examine whether earnings that are smoother or more volatile than cash flows provide or garble information. Consistent with theories that predict more informed trading when public information is less informative, I find that bid-ask spreads and the probability of informed trading are higher both when earnings are smoother than cash flows and also when earnings are more volatile than cash flows. Additional tests suggest that managers' discretionary choices that lead to smoother or more volatile earnings than cash flows garble information, on average. However, I find that informed trading is attenuated in settings in which theory suggests that discretionary smoothing or volatizing of earnings is likely to be informative. Copyright (c), University of Chicago on behalf of the Institute of Professional Accounting, 2008.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Accounting Research.
Volume (Year): 46 (2008)
Issue (Month): 4 (09)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456
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- Byun, Hae-Young & Hwang, Lee-Seok & Lee, Woo-Jong, 2011. "How does ownership concentration exacerbate information asymmetry among equity investors?," Pacific-Basin Finance Journal, Elsevier, vol. 19(5), pages 511-534, November.
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- Asli Ascioglu & Shantaram Hegde & Gopal Krishnan & John McDermott, 2012. "Earnings management and market liquidity," Review of Quantitative Finance and Accounting, Springer, vol. 38(2), pages 257-274, February.
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