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Individual and Institutional Investors’ Response to Earnings Reported by Conservative and Non‐Conservative Firms: Evidence from Chinese Financial Markets

Individual and Institutional Investors’ Response to Earnings Reported by Conservative and... In this study, we document that there are significant differences in individual and institutional investors’ perception and interpretation of information based on accounting conservatism, as reflected by their trading behavior in the Chinese financial market. Our findings show that institutional investors, who are more sophisticated and have better skills, engage in higher purchases of equities of firms that use high accounting conservatism compared to the firms that use low/no accounting conservatism. Institutional investors’ equity purchases are even higher if these firms are associated with higher growth opportunities. On the other hand, individual investors are attracted more by the attention‐grabbing events and are motivated to purchase equities of firms that either do not use accounting conservatism or use low accounting conservatism, and their purchases are even higher when the firms report positive earnings surprises. Additionally, we find that abnormal returns are higher for the firms using high accounting conservatism and have experienced higher purchases by institutional investors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of International Financial Management & Accounting Wiley

Individual and Institutional Investors’ Response to Earnings Reported by Conservative and Non‐Conservative Firms: Evidence from Chinese Financial Markets

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References (128)

Publisher
Wiley
Copyright
Copyright © 2016 John Wiley & Sons Ltd
ISSN
0954-1314
eISSN
1467-646X
DOI
10.1111/jifm.12047
Publisher site
See Article on Publisher Site

Abstract

In this study, we document that there are significant differences in individual and institutional investors’ perception and interpretation of information based on accounting conservatism, as reflected by their trading behavior in the Chinese financial market. Our findings show that institutional investors, who are more sophisticated and have better skills, engage in higher purchases of equities of firms that use high accounting conservatism compared to the firms that use low/no accounting conservatism. Institutional investors’ equity purchases are even higher if these firms are associated with higher growth opportunities. On the other hand, individual investors are attracted more by the attention‐grabbing events and are motivated to purchase equities of firms that either do not use accounting conservatism or use low accounting conservatism, and their purchases are even higher when the firms report positive earnings surprises. Additionally, we find that abnormal returns are higher for the firms using high accounting conservatism and have experienced higher purchases by institutional investors.

Journal

Journal of International Financial Management & Accounting – Wiley

Published: Jun 1, 2016

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