Investor Sentiment, Accruals Anomaly, and Accruals Management
27 Pages Posted: 13 Nov 2008
Date Written: October 10, 2008
This study examines the effect of investor sentiment on the accruals anomaly. We find that for small stocks mispricing per unit of accruals is greater in high sentiment periods as compared to low sentiment periods. This result is consistent with the notion that in high sentiment periods individual investors pay less attention towards understanding the accruals and cash flow components of earnings. This effect is observed primarily for small stocks because these stocks are more likely to be followed by individual investors, who tend to have limited attention. We also find that for small stocks reported accruals are greater during high sentiment periods as compared to low sentiment periods, suggesting that managers exploit the greater overvaluation per unit of accruals during high sentiment periods.
Keywords: Accruals, Mispricing, Investor Sentiment, Accruals Management
JEL Classification: G14, M41, M43
Suggested Citation: Suggested Citation