Download this Paper Open PDF in Browser

Investor Sentiment, Accruals Anomaly, and Accruals Management

27 Pages Posted: 13 Nov 2008  

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Umit G. Gurun

University of Texas at Dallas

Date Written: October 10, 2008

Abstract

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

Ali, Ashiq and Gurun, Umit G., Investor Sentiment, Accruals Anomaly, and Accruals Management (October 10, 2008). Journal of Accounting, Auditing and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1299084

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Umit G. Gurun (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Paper statistics

Downloads
453
Rank
51,591
Abstract Views
1,894