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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

Robert H. Battalio

University of Notre Dame - Department of Finance

Alina Lerman

Yale School of Management

Joshua Livnat

New York University; Prudential Financial - Quantitative Management Associates

Richard R. Mendenhall

University of Notre Dame - Department of Finance

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

Battalio, Robert H. and Lerman, Alina and Livnat, Joshua and Mendenhall, Richard R., Who, if Anyone, Reacts to Accrual Information? (March 18, 2009). Journal of Accounting and Economics, Vol. 53, No. 1-2, 2012. Available at SSRN: https://ssrn.com/abstract=971007 or http://dx.doi.org/10.2139/ssrn.971007

Robert H. Battalio

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)

Alina Lerman

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Joshua Livnat

New York University ( email )

44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)

Prudential Financial - Quantitative Management Associates ( email )

2 Gateway Center
6th Fl.
Newark, NJ 07102
United States

Richard R. Mendenhall (Contact Author)

University of Notre Dame - Department of Finance ( email )

330 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6076 (Phone)
574-631-5255 (Fax)

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