Information Asymmetry and the Comparative Level of Accounting Accruals

36 Pages Posted: 5 Jul 2011

See all articles by Sonia Sanabria

Sonia Sanabria

Universidad de Alicante-Dpto. Economía Financiera

Igor Goncharov

Lancaster University - Department of Accounting and Finance

Allan Hodgson

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Suntharee Lhaopadchan

Kasetsart University - Faculty of Management Sciences

Date Written: July 3, 2011

Abstract

Arguments about increased (market based) accounting accruals suggest that the information benefits accrue directly to investors (Barth, 2007; Barth et al., 2008). This paper compares Spanish and Australian accruals as a test of relative information asymmetry, measured by the ability of insiders to earn risk and size adjusted returns and to predict future income. We find larger excess returns and higher asymmetry surrounding conditioned insider accrual transactions in Australia. Results are consistent with (i) market based accruals creating asymmetric information that provide a first round information advantage to insiders and financial analysts, and (ii) with Ball et al.’s (2000) argument that information asymmetries in lower accrual based countries are mitigated by economic and institutional features other than the accounting system.

Keywords: Insider trading, earnings predictability, market based accounting accruals, analyst forecasts, information asymmetry

JEL Classification: G10, G14, M41

Suggested Citation

Sanabria, Sonia and Goncharov, Igor and Hodgson, Allan C. and Lhaopadchan, Suntharee, Information Asymmetry and the Comparative Level of Accounting Accruals (July 3, 2011). Available at SSRN: https://ssrn.com/abstract=1878088 or http://dx.doi.org/10.2139/ssrn.1878088

Sonia Sanabria

Universidad de Alicante-Dpto. Economía Financiera ( email )

Ctra. S. Vicente s/n
Alicante 03690
Spain

Igor Goncharov

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

Allan C. Hodgson (Contact Author)

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Suntharee Lhaopadchan

Kasetsart University - Faculty of Management Sciences ( email )

199 Sukhumvit Road
Thungsukhla
Siracha, Chonburi 20230
Thailand

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