Investor Sophistication and the Mispricing of Accruals

This paper examines the role of institutional investors in the pricing of accruals. Using Bushee;s (1998) classification of institutional investors, we show that firms with a high level of institutional ownership and a minimum threshold level of active institutional traders have stock prices that more accurately reflect the persistence of accruals. This result holds after controlling for differences in the persistence of accruals between firms with high and low institutional ownership, and after controlling for other characteristics that are correlated with institutional ownership and future returns. Additionally, firms with low institutional ownership are smaller, less profitable, and have lower share turnover, suggesting that limits to arbitrage impede institutional investors from exploiting the seemingly large abnormal returns for these firms.     

Discussion of “Investor Sophistication and the Mispricing of Accruals”

Collins et al. (2003, this issue) empirically investigate the relation between accruals mispricing and institutional ownership (IO), a proxy for investor sophistication. Their results show that accruals mispricing and IO are negatively correlated; less IO, more accruals mispricing. The authors attribute this differential in accruals mispricing to institutions' superior ability to price accruals either due to superior analytical ability or due to greater access to private information. While the research question is intriguing, a number of methodological limitations may limit the reliability and generality of the findings. In this paper, I discuss these limitations and offer ways of overcoming them, as well as identify a future research avenue in the area of mispricing.     

Got Information? Investor Response to Form 10-K and Form 10-Q EDGAR Filings

This study examines the investor response to Form 10-K and 10-Q reports filed between 1996 and 2001. The samples comprise essentially the entire body of EDGAR filings, including the small business (SB) versions of each filing type. The study documents that the absolute value of excess return is reliably greater on the day of and on the one or two days immediately following the filing date. The response is stronger around a 10-K date than a 10-Q date, more elevated for delayed filers, and increases significantly over the study period for both filing types. A regression analysis indicates that differences in response due to filing delay and year of filing are not subsumed by other attributes of the information environment, such as changes in industry composition, day of week, market capitalization, and shares held by institutions.     

Accruals,Cash Flows,and Equity Values

We find, as predicted, that the differential ability of accrual and cash flow components of earnings to help forecast future abnormal earnings and the persistence of the components result in the components having different valuation implications. We base our tests on Ohlson (1999) applied to fourteen industries. We find: (1) Accruals and cash flows aid in forecasting future abnormal earnings incremental to abnormal earnings and equity book value. (2) Accruals and cash flows provide explanatory power for equity market value incremental to equity book value and abnormal earnings. (3) There is evidence that accruals and cash flows valuation coefficients are consistent with the Ohlson model.     

XBRL and Accruals: Empirical Evidence from China

We examine whether XBRL adoption by publicly traded firms on the Shanghai Stock Exchange and Shenzhen Stock Exchange is related to the level of total accruals that firms report in the pre‐XBRL versus post‐XBRL periods. Our results indicate that the level of total accruals in the post‐XBRL period is lower relative to the pre‐XBRL period. This finding is robust to several controls for macroeconomic conditions and firm fundamentals. Moreover, we find this main effect is most prominent for firms that are most likely to benefit from greater transparency: high‐growth firms, small firms, and firms in high‐technology industries. One interpretation of our results is that XBRL implementation decreases investor’s information acquisition costs and thereby improves their ability to detect earnings management; managers in turn reduce accruals.     

Elections and Discretionary Accruals: Evidence from 2004

We examine the accrual choices of outsourcing firms with links to U.S. congressional candidates during the 2004 elections, when corporate outsourcing was a major campaign issue. We find that politically connected firms with more extensive outsourcing activities have more income‐decreasing discretionary accruals. Further, relative to adjacent periods, the evidence is concentrated in the two calendar quarters immediately preceding the 2004 election, consistent with heightened incentives for firms to manage earnings during the election season. The incentives can be attributed to donor firms' concerns about the potentially negative consequences of scrutiny over outsourcing for themselves and for their affiliated candidates.     

Tax-Efficient Asset Management: Evidence from Equity Mutual Funds

We investigate the relation between tax burdens and mutual fund performance from both a theoretical and an empirical perspective. The theoretical model introduces heterogeneous tax clienteles in an environment with decreasing returns to scale and shows that the equilibrium performance of mutual funds depends on the size of the tax clienteles. Our empirical results show that the performance of U.S. equity mutual funds is related to their tax burdens. We find that tax-efficient funds exhibit not only superior after-tax performance, but also superior before-tax performance due to lower trading costs, favorable style exposures, and better selectivity.     

Earnings and Equity Valuation in the Biotech Industry: Theory and Evidence

We examine how the price-earnings relation varies with the uncertainty about and the quality of a firm's investments. We develop a real option valuation framework to capture investment and abandonment options in the research-intensive biotechnology industry. We hypothesize that the price-earnings relation will be V-shaped and change over the firm 's life cycle. We also show how nonfinancial information affects the pricing of earnings. Our empirical findings are based on a sample of 301 biotechnology firms that made IPOs between 1980 and 2000, and are generally consistent with our predictions.     

Accruals quality,stock returns and asset pricing: Evidence from the UK

The extent to which accruals quality (AQ) is relevant for asset pricing has been debated widely. Prior research in this area has focused almost exclusively on the US. Using UK data, we investigate whether AQ portfolios exhibit evidence of significant mispricing, and whether an AQ factor is useful in explaining the portfolios' returns. We also investigate whether AQ is a priced risk factor. Using a two stage cross-sectional regression, we show that an AQ measure explains the cross-section of stock returns. AQ also explains the time-series variation in returns for two sets of portfolios: 16 size-BM portfolios, and 20 industry portfolios. Consistent with some recent US evidence, however, we find no evidence that AQ is a priced risk factor for UK stocks.     

Accruals Quality, Information Risk and Cost of Capital: Evidence from Australia

Abstract:  Recent theoretical work argues that information risk is a non-diversifiable risk factor that is priced in the capital market. Using accruals quality to proxy for information risk, Francis et al. (2005) provide empirical support for this argument using a sample of US firms. This paper re-examines the interplay of accruals quality, information risk and cost of capital in Australia, where a number of important institutional and regulatory differences are hypothesized to affect the relation between accruals quality and cost of capital. The results suggest that, while accruals quality impacts on the cost of capital for Australian firms, some salient differences exist. In contrast to findings for US firms, the costs of debt and equity for Australian firms are largely influenced by accruals quality arising from economic fundamentals (i.e., innate accrual quality) but not discretionary reporting choices (i.e., discretionary accrual quality). This finding is consistent with our predictions based on the Australian institutional and regulatory environment. In addition, using both the asset pricing tests in Francis et al. (2005) and Core et al. (2008) , we provide evidence consistent with accruals quality being a priced risk factor.     

Financial Product Design,Retail Investor Sophistication and Issuer Incentives: A Case Study

Many financial products and securities marketed to retail investors involve design features that can make it difficult to understand the risk and return characteristics involved. This paper examines one such security, Convertible Preference Step Up Units (CPUs), issued in Australia by the US Masters Residential Property Fund (URF) at the end of 2017. It argues that an apparently relatively simple design masks significant complexity which would make risk assessment and fair pricing well beyond the capabilities of retail investors. Despite that, analysis of the security design and disclosure documents suggests that it would not fall foul of the financial product banning powers recommended for the Australian Securities and Investment Commission by the 2014 Australian Financial System Inquiry and in draft legislation as at mid 2018. This highlights the difficulties for effective financial consumer protection resulting from the mismatch between financial literacy levels and financial product design.     

国际投资者对中国股票资产的价值偏好：来自A-H股和A-B股折扣率的证据

国际投资者因中国经济快速成长而投资A股、H股、B股等中国股票资产。已有研究从硬分割和软分割角度研究了A-H和A-B股折扣率形成原因。本文进一步从国际与国内投资者的价值偏好差异来研究折扣率差异。对1999-2007年的面板数据采用固定效应估计方法,发现在控制其他因素后,折扣率和上市公司的价值变量显著负相关,表明国际投资者偏好价值型的中国股票资产,导致其折扣率偏低。相对信息不对称,价值偏好差异是更重要的资本市场软分割因素。     

内部控制、股权集中度与投资者关系管理——来自A股上市公司投资者关系调查的证据

本文理论分析了内部控制对投资者关系管理的影响,以及作为公司治理重要机制和内部控制环境要素的股权集中度对两者关系的调节效应。在理论分析的基础上,利用投资者关系管理的问卷调查数据、内部控制指数和相关数据进行了实证检验。研究发现,内部控制对投资者关系管理水平存在显著的正向影响,且在股权集中度较低的公司,内部控制对投资者关系管理水平的正向作用更强。     

Accruals quality and the cost of debt: Evidence from Vietnam

This study investigates the impact of accruals quality (AQ) on the cost of debt. Using a sample of Vietnamese listed companies during the period 2012–2017, we show that AQ has a significant negative relation with the cost of debt. Particularly, the 10% best AQ firms enjoy a 1.35% lower interest costs than the 10% worst AQ firms. Furthermore, the discretionary AQ component has a significant negative association with the cost of debt, while innate AQ shows an insignificant impact on the cost of debt. The study delivers an important message to firms regarding the economic benefits of providing high-quality accounting information.     

Investor Sentiment and Stock Returns: Evidence from Turkey

This paper investigates the relation between investor sentiment and stock returns on the Istanbul Stock Exchange, employing vector autoregressive (VAR) analysis and Granger causality tests. The sample period extends from July 1997 to June 2005. In the VAR models, stock portfolio returns and investor sentiment proxies are used as endogenous variables. Two dummy variables accounting for natural and economic crises are used as exogenous variables. The analysis results suggest that, excepting shares of equity issues in aggregate issues, stock portfolio returns seem to affect all investor sentiment proxies, namely closed-end fund discount, mutual fund flows, odd-lot sales-to-purchases ratio, and repo holdings of mutual funds. Investor sentiment does not appear to forecast future stock returns; only the turnover ratio of the stock market seems to have forecasting potential.     

Domestic and Foreign Earnings, Stock Return Variability, and the Impact of Investor Sophistication

We examine the importance of foreign earnings relative to domestic earnings for a sample of U.S. multinationals using variance decomposition. Our methodology represents an alternative and complementary approach over the prior literature, which is based on traditional regressions and earnings response coefficients. We document that domestic earnings are more important in explaining the variance of unexpected returns than are foreign earnings and that the relative importance of domestic earnings is a decreasing function of investor sophistication. Last, we classify institutional investors as either short‐ or long‐term oriented following Bushee [1998]. We find that the variance contribution of foreign earnings increases with the level of investment by long‐term investors. In contrast, there is no significant relation between the degree of ownership by short‐term (or transient) investors and the variance contribution of domestic and foreign earnings. Overall, our results are consistent with Thomas's [1999] finding that investors on average underestimate the persistence of foreign earnings.     

投资者保护、大股东持股比例与现金持有量

以2005～2011年沪深两市A股391家上市公司为样本研究投资者保护、大股东持股比例和现金持有量的关系,研究结果表明,大股东持股比例与现金持有量间呈倒"U"型关系。进一步按照投资者保护程度的高低对样本进行分组,研究发现,当大股东持股比例小于48%时,投资者保护程度高的组,大股东持股比例和现金持有量呈显著正相关关系;当大股东持股比例大于48%时,投资者保护程度高的组,大股东持股比例和现金持有量呈显著负相关关系。     

不同竞争态势下的公司股权结构与价值的实证研究

股权结构与企业绩效之间存在着区间效应，合理的股权结构能为企业带来更高的价值，但不同竞争态势下的上市公司，其股权结构对公司价值的影响也不相同。为了使股权结构发挥所期望的作用，首先应说量提高行业的竞争性。