The Effect of Overvaluation on Investment and Accruals: The Role of Information

66 Pages Posted: 8 Aug 2016

See all articles by Shing-yang Hu

Shing-yang Hu

National Taiwan University - Department of Finance

Yueh-hsiang Lin

National Taipei College of Business

Christine W. Lai

National Taiwan Normal University

Date Written: June 3, 2016

Abstract

This paper examines whether the effect of overvaluation on accrual and investment is weak in a good information environment using the naive manager hypothesis and the monitoring hypothesis. The results show that CEOs recognize overvaluation and reduce their shareholdings regardless of the extent of the information environment and the naive manager hypothesis is not supported. However, managers in a good information environment do not respond to overvaluation with accrual or investment, and more institutional investors help to reduce overvaluation-driven behaviors. Thus, the monitoring hypothesis is supported. These findings are free from causality concerns and robust for alternative measures of misvaluation.

Keywords: Accrual, Earnings management, Capital investment, Misvaluation, Information, Governance

JEL Classification: G10, G34, M40, M52

Suggested Citation

Hu, Shing-yang and Lin, Yueh-hsiang and Lai, Christine W., The Effect of Overvaluation on Investment and Accruals: The Role of Information (June 3, 2016). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2819888

Shing-yang Hu

National Taiwan University - Department of Finance ( email )

Room 715, School of Management
85, Sec. 4, Roosevelt Rd.
Taipei
Taiwan
+886 2 33661085 (Phone)
+886 2 23661299 (Fax)

Yueh-hsiang Lin (Contact Author)

National Taipei College of Business ( email )

Taipei
Taiwan

Christine W. Lai

National Taiwan Normal University ( email )

162, Hoping East Road, sec. 1
Taipei 106
Taiwan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
99
Abstract Views
1,135
rank
356,834
PlumX Metrics