Investor Sentiment and Accruals Anomaly

Francisca Beer and Badreddine Hamdi ()
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Francisca Beer: CSUSB - California State University [San Bernardino]
Badreddine Hamdi: CREGO - Centre de Recherche en Gestion des Organisations (EA 7317) - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE] - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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Abstract: This paper examines whether investors' sentiment affectsaccruals anomaly across 15 European countries. In line with recent evidence for the U.S., we find that sentiment causes accruals mispricing across European countries. The effect is pronounced for stocks whose valuations are highly subjective and difficultto arbitrage. Our results also reveal evidence in favor of managers' opportunistic disclosure behavior. The accruals reported are higher in high sentiment periods as compared with low sentiment periods. Our cross-country analysisprovidesevidence that sentiment influences accruals anomaly in countries with weaker outside shareholder rights, lower legal enforcement, lower equity market development, higher allowance of accrual accounting and in countries where herd-like behavior and overreaction behavior are strong. These countries that present significant accruals mispricing in high sentiment periods also display high level of accruals management, suggesting that accruals management is an important source of accruals mispricing for individual investors.

Keywords: Investors’ sentiment; Accruals anomaly; Accruals management; Cross-country study (search for similar items in EconPapers)
Date: 2017-07-01
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Published in Sixth European Academic Research Conference on Global Business, Economics,Finance and Social Sciences, Jul 2017, Rome, Italy

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03101763

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