Download this Paper Open PDF in Browser

Accruals Management, Investor Sophistication, and Equity Valuation: Evidence from 10-Q Filings

38 Pages Posted: 19 Jul 2000  

Eli Bartov

NYU Stern School of Business

Carol A. Marquardt

City University of New York (CUNY) – Baruch College

Steven Balsam

Temple University - Department of Accounting

Date Written: June 2000

Abstract

The release of the full set of financial statements in Form 10-Q provides investors with the data necessary to estimate the discretionary portion of earnings, thereby allowing them to better assess the integrity of reported quarterly earnings. We thus expect a negative association between unexpected discretionary accruals estimated using 10-Q disclosures and stock returns around 10-Q filing dates. Consistent with our expectations, we document a negative association between unexpected discretionary accruals and cumulative abnormal returns over a short window around the 10-Q filing date. Furthermore, this association varies systematically with investor sophistication. Finally, results from portfolio tests indicate that this association is economically as well as statistically significant. One interpretation of our findings is that accruals management has substantial valuation consequences, which are quickly impounded into stock prices.

JEL Classification: G12, G14, M41, M43, M45

Suggested Citation

Bartov, Eli and Marquardt, Carol A. and Balsam, Steven, Accruals Management, Investor Sophistication, and Equity Valuation: Evidence from 10-Q Filings (June 2000). Available at SSRN: https://ssrn.com/abstract=232721 or http://dx.doi.org/10.2139/ssrn.232721

Eli Bartov (Contact Author)

NYU Stern School of Business ( email )

44 W. 4th Street, Suite 10-96
New York, NY 10012
United States
212.998.0016 (Phone)

Carol Marquardt

City University of New York (CUNY) – Baruch College ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3241 (Phone)

Steven Balsam

Temple University - Department of Accounting ( email )

306 Speakman Hall
Philadelphia, PA 19122
United States
215-204-5574 (Phone)
215-204-5587 (Fax)

HOME PAGE: http://www.sbm.temple.edu/~drb/

Paper statistics

Downloads
1,113
Rank
14,917
Abstract Views
3,647