Who, if Anyone, Reacts to Accrual Information?
Journal of Accounting and Economics, Vol. 53, No. 1-2, 2012
49 Pages Posted: 20 Mar 2007 Last revised: 10 Apr 2017
Date Written: March 18, 2009
Abstract
We show that the vast majority of investors ignore value-relevant accruals information when it is first released, but that investors who initiate trades of at least 5,000 shares tend to transact in the proper direction. These investors trade on accruals information only when the previously-announced earnings signal is non-negative. Unconditionally, those investors initiating the smallest trades appear to respond to accruals in the wrong direction, but further investigation suggests this behavior is explained by their attraction to attention-grabbing stocks. Finally, we find that those who trade on accruals information have insufficient market power to mitigate the accruals anomaly.
Keywords: Market efficiency, Anomalies, Accruals, Earnings
JEL Classification: G14
Suggested Citation: Suggested Citation
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