38 Pages Posted: 19 Jul 2000
Date Written: June 2000
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: 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