publication . Article . 2007

Does Investors' Sophistication Affect Persistence and Pricing of Discretionary Accruals?

Lanfeng Kao;
Restricted
  • Published: 01 Jan 2007 Journal: Review of Pacific Basin Financial Markets and Policies, volume 10, pages 33-50 (issn: 0219-0915, eissn: 1793-6705, Copyright policy)
  • Publisher: World Scientific Pub Co Pte Lt
Abstract
<jats:p> 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. </jats:p>
Subjects
free text keywords: Managerial discretion, discretionary accruals, investors' sophistication, Economics and Econometrics, Finance, Economics, Sophistication, media_common.quotation_subject, media_common, Accrual, Financial economics, Earnings, business.industry, business, jel:G1, jel:G2, jel:G3
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