Article2011

An Examination of the Naïve-Investor Hypothesis in Accruals Mispricing in Tunisian Firms

22 citations0/0 files storedJournal of International Financial Management and Accounting

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Financial Markets and Investment Strategies Auditing, Earnings Management, Governance Financial Analysis and Corporate Governance

Abstract

This study extends previous studies on accrual anomaly to investigate the emerging market's mispricing of accruals. Using Mishkin (1983) test, hedge portfolio test and Fama and MacBeth (1973) regression, we test whether the Tunisian Stock Exchange price rationally reflects the 1-year ahead earnings implications of its earnings components. We find that earnings and their cash flow and accrual components are not rationally priced by the market. Additionally, this paper examines the role of sophistication investors in the pricing of earnings and their components. Our results show that accruals for firms with higher level of institutional ownership are not mispriced, while accruals for firms with lower institutional ownership are overpriced significantly by the market.

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References

1973Risk, Return, and Equilibrium: Empirical Tests 1996Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?2003Limited attention, information disclosure, and financial reporting 1997Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings?1990Evidence that stock prices do not fully reflect the implications of current earnings for future earnings 2001Institutional Investors and Equity Prices 1997Agency Problems, Equity Ownership, and Corporate Diversification 1998Institutional Investors and Equity Prices

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