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Who, if anyone, reacts to accrual information?

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Author Info

  • Battalio, Robert H.
  • Lerman, Alina
  • Livnat, Joshua
  • Mendenhall, Richard R.
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    Abstract

    We show that the vast majority of investors ignore value-relevant accruals information when it is first released, but that investors who initiate trades of at least 5,000 shares tend to transact in the proper direction. These investors trade on accruals information only when the previously-announced earnings signal is non-negative. Unconditionally, those investors initiating the smallest trades appear to respond to accruals in the wrong direction, but further investigation suggests this behavior is explained by their attraction to attention-grabbing stocks. Finally, we find that those who trade on accruals information have insufficient market power to mitigate the accruals anomaly.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165410111000541
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 53 (2012)
    Issue (Month): 1 ()
    Pages: 205-224

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    Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:205-224

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    Web page: http://www.elsevier.com/locate/jae

    Related research

    Keywords: Market efficiency; Anomalies; Accruals; Earnings;

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    References

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    13. Joshua Livnat & Richard R. Mendenhall, 2006. "Comparing the Post-Earnings Announcement Drift for Surprises Calculated from Analyst and Time Series Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 44(1), pages 177-205, 03.
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    Cited by:
    1. Forough Heirany & Mahmoud Moeinadin & Manije Nazemizadeh, 2014. "The Role of Accrual Decomposition in Increasing the Information Value," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(1), pages 309-318, January.

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