Lanfeng Kao () (Department of Finance, National University of Kaohsiung, No. 700, Kaohsiung University Road, Nan-Tzu District, Kaohsiung 811, Taiwan, R.O.C.)
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.
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