Heterogeneous Valuation of Accruals and Trading Volume

40 Pages Posted: 3 Feb 2004

See all articles by Oliver Zhen Li

Oliver Zhen Li

National University of Singapore (NUS)

Hong Xie

University of Kentucky - Von Allmen School of Accountancy

Weihong Xu

State University of New York (SUNY) - Accounting & Law

Date Written: August 2005

Abstract

This paper investigates the relation between trading volume and the magnitudes (i.e., the absolute values) of accruals and operating cash flows around quarterly earnings announcement dates. We hypothesize and find that trading volume at earnings announcements is positively related to the magnitude of accruals and is more positively related to the magnitude of accruals than to the magnitude of operating cash flows. In addition, we find a positive relation between belief jumbling, a measure used in prior literature to proxy for investors' differential interpretations of earnings announcements, and the magnitude of accruals but not between belief jumbling and the magnitude of cash flows. Our findings are consistent with the notion that accruals are an underlying source that contributes to investors' differential interpretations of earnings announcements, which, according to theory, stimulate trading volume.

JEL Classification: M41, M43, G12

Suggested Citation

Li, Oliver Zhen and Xie, Hong and Xu, Weihong, Heterogeneous Valuation of Accruals and Trading Volume (August 2005). Available at SSRN: https://ssrn.com/abstract=493043 or http://dx.doi.org/10.2139/ssrn.493043

Oliver Zhen Li

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Hong Xie (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
(859) 257-4648 (Phone)
(859) 257-3654 (Fax)

Weihong Xu

State University of New York (SUNY) - Accounting & Law ( email )

Buffalo, NY 14260
United States
716-645-5434 (Phone)
716-645-3823 (Fax)

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