The bright side of investor sentiment: evidence from real activities manipulation

Yi Si, Chongwu Xia and Endong Yang

Asia-Pacific Journal of Accounting & Economics, 2020, vol. 27, issue 3, 327-351

Abstract: This paper studies how investor sentiment affects managers’ real activities manipulation (RAM). Under the catering hypothesis, managers engage in high level of RAM to meet investors’ expectations of earnings when sentiment is high. Under the curbing hypothesis, managers are concerned about the negative impact of RAM and sentiment reversal in the future, and hence involve in less RAM when sentiment is high. We find consistent results with the curbing hypothesis. Our results are robust to alternative specifications and measures for investor sentiment and RAM.

Date: 2020
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DOI: 10.1080/16081625.2019.1673186

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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