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Who, if anyone, reacts to accrual information?

Author

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

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.

Suggested Citation

  • Battalio, Robert H. & Lerman, Alina & Livnat, Joshua & Mendenhall, Richard R., 2012. "Who, if anyone, reacts to accrual information?," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 205-224.
  • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:205-224 DOI: 10.1016/j.jacceco.2011.06.007
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    References listed on IDEAS

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    Citations

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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.
    2. Bin Miao & Siew Hong Teoh & Zinan Zhu, 2016. "Limited attention, statement of cash flow disclosure, and the valuation of accruals," Review of Accounting Studies, Springer, vol. 21(2), pages 473-515, June.

    More about this item

    Keywords

    Market efficiency; Anomalies; Accruals; Earnings;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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