The Effect Of Investor Sentiment On Earnings Management
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The Effect Of Investor Sentiment On Earnings Management
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Author : Lin Chen (Ph.D.)
language : en
Publisher:
Release Date : 2020
The Effect Of Investor Sentiment On Earnings Management written by Lin Chen (Ph.D.) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with Accounting categories.
The association between investor sentiment and corporate reporting decisions/outcomes has been recently examined in the accounting and finance literature. As an important outcome of corporate reporting decisions, earnings management (EM) may be affected by investor sentiment. In this dissertation, I examine two research questions. The first is whether investor sentiment is associated with the propensity of firms' engaging in the two primary forms of EM: accrual earnings management (AEM) and real earnings management (REM). The second question is whether firms' internal governance strength and external audit quality would moderate the association between investor sentiment and AEM as well as REM. For the first research question, the results are mixed depending on the proxy of investor sentiment. Specifically, when Michigan Consumer Confidence Index is used as the sentiment proxy, I find a significant and positive association between investor sentiment and the propensity of (1) AEM, (2) the overall measure of REM and (3) the specific REM mechanism through accelerating sales. However, when investor sentiment is proxied by the index developed by Baker and Wurgler (2006), I find no relation with the propensity of AEM and only a positive association with the propensity of REM through accelerating sales. Regarding the second research question, I find no evidence that either the strength of internal corporate governance mechanisms or quality of external auditors affect the association between investor sentiment and AEM. In terms of REM, the evidence is also mixed depending on which sentiment proxy is used.
Does Investor Sentiment Affect Earnings Management
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Author : Ana Vidolovska Simpson
language : en
Publisher:
Release Date : 2013
Does Investor Sentiment Affect Earnings Management written by Ana Vidolovska Simpson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
I hypothesize and find that earnings management via accruals is driven partially by the prevailing market-wide investor sentiment. Managers inflate earnings in periods of higher sentiment, but report more conservatively during periods of low sentiment. Moreover, the likelihood of income-increasing earnings management to avoid negative earnings surprises is also positively associated with investor sentiment. These results are robust to: (i) controls for time-varying firm characteristics; such as growth, investment opportunity sets, future profitability, leverage, and size; (ii) macroeconomic variables; such as future inflation, GDP growth, and growth in industrial production; (iii) multiple proxies for investor sentiment and; (iv) discretionary revenues as alternative measure of earnings management. Cross-sectional analyses reveal that firms whose stock returns co-move more with investor sentiment are more (less) likely to manage earnings upward via abnormal accruals in quarters of higher (lower) sentiment. The findings of managers' strategic use of abnormal accruals show the need for increased attention from boards of directors, auditors, and regulators to heightened managerial incentives to overstate earnings and to report optimistic earnings numbers during periods of high investor sentiment.
Corporate Transparency And The Impact Of Investor Sentiment On Stock Prices
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Author : Michael Firth
language : en
Publisher:
Release Date : 2014
Corporate Transparency And The Impact Of Investor Sentiment On Stock Prices written by Michael Firth and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Using China's stock market as the testing venue, this study examines how corporate transparency helps explain the sensitivity of stock prices to general investor sentiment. We find that firms with low corporate transparency, measured by a battery of proxies including state ownership, the prevalence of related party transactions, accrual-based earnings management, audit opinions, and the quality of audit firms, are more affected by investor sentiment than are firms with high corporate transparency. Overall, our findings highlight the importance of corporate transparency in mitigating the effects of investor sentiment on stock prices.
Effect Of Investor Sentiment On The Stock Market Reaction To Earnings News
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Author : David Folsom
language : en
Publisher:
Release Date : 2015
Effect Of Investor Sentiment On The Stock Market Reaction To Earnings News written by David Folsom and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
In this study, we examine the effect of investor sentiment on the stock market reaction to earnings news (i.e., the earnings response coefficient or ERC) for loss firms. We find that the ERC for loss firms' earnings increases is less positive as sentiment increases, contrary to the findings in prior literature examining how sentiment affects the ERC for profit firms. Cross-sectional analysis reveals that the dampened ERC associated with earnings increases in loss firms during high sentiment periods is driven by various firm characteristics including low book values of equity, low R&D intensity, the inability to raise external capital, and a lack of nonrecurring write-offs. We also examine future returns and find that, on average, the effect of sentiment on loss firms' earnings changes reverses in the second year following an earnings announcement.
The Real Effects Of Investor Sentiment
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Author : Christopher Polk
language : en
Publisher:
Release Date : 2003
The Real Effects Of Investor Sentiment written by Christopher Polk and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Arbitrage categories.
We study how stock market mispricing might influence individual firms' investment decisions. We find a positive relation between investment and a number of proxies for mispricing, controlling for investment opportunities and financial slack, suggesting that overpriced (underpriced) firms tend to overinvest (underinvest). Consistent with the predictions of our model, we find that investment is more sensitive to our mispricing proxies for firms with higher R & D intensity suggesting longer periods of information asymmetry and thus mispricing) or share turnover (suggesting that the firms' shareholders are short-term investors). We also find that firms with relatively high (low) investment subsequently have relatively low (high) stock returns, after controlling for investment opportunities and other characteristics linked to return predictability. These patterns are stronger for firms with higher R & D intensity or higher share turnover.
The Differential Impact Of Investor Sentiment On The Value Relevance Of Book Value Versus Earnings
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Author : Guannan Wang
language : en
Publisher:
Release Date : 2014
The Differential Impact Of Investor Sentiment On The Value Relevance Of Book Value Versus Earnings written by Guannan Wang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This study investigates the differential role of investor sentiment on the value relevance of book value versus earnings. I predict and find that the value relevance of book value is higher during low sentiment periods relative to high sentiment periods, and that the value relevance of earnings is higher during high sentiment periods relative to low sentiment periods. These findings are consistent with investors -- when optimistic -- placing a higher weight on earnings, which implies expected future earnings, whereas investors -- when pessimistic -- place a higher weight on book value, which is a conservative estimation of current value. Additional analyses suggest that this sentiment effect is more pronounced for book value components that are closely related to abandonment value, and for earnings components that have strong indication of future earnings (specifically, permanent earnings). Results are also robust to alternative measures of investor sentiment.
Investor Sentiment And Corporate Disclosure
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Author : Nittai Bergman
language : en
Publisher:
Release Date : 2008
Investor Sentiment And Corporate Disclosure written by Nittai Bergman and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
This paper investigates how firms react strategically to investor sentiment via their disclosure policies in an attempt to influence the sentiment-induced biases in expectations. Proxying for sentiment using the Michigan Consumer Confidence Index, we show that during low-sentiment periods, managers increase forecasts to quot;walk upquot; current estimates of future earnings over long horizons. In contrast, during periods of high sentiment, managers reduce their long-horizon forecasting activity. Further, while there is an association between sentiment and the biases in analysts' estimates of future earnings, management disclosures vary with sentiment even after controlling for analyst pessimism, indicating that managers attempt to communicate with investors at large, and not just analysts. Our study provides evidence that firms' long-horizon disclosure choices reflect managers' desire to maintain optimistic earnings valuations.
Earnings Measurement Determination Management And Usefulness
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Author : Ahmed Riahi-Belkaoui
language : en
Publisher: Bloomsbury Publishing USA
Release Date : 1999-11-30
Earnings Measurement Determination Management And Usefulness written by Ahmed Riahi-Belkaoui and has been published by Bloomsbury Publishing USA this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999-11-30 with Business & Economics categories.
Riahi-Belkaoui examines the crucial issues involved in the determination and uses of earnings as a measure of financial performance. He points out that the nature and measurement of earnings are subject to various interpretations, that determination of earnings follows determination of net value added, and that earnings is subject to management manipulation (earnings can be smoothed, for example.) A succinct, penetrating, illuminating treatment of earnings in general as well as its particulars, the book will be especially useful to upper management and accounting professionals, and to their colleagues in the academic community. Riahi-Belkaoui argues that the interest in earnings and its related issues of measurement, determination, management, and usefulness stems from three factors: 1) the crucial importance of earnings as the shareholders' share of the corporation's wealth; 2) the reliance of investors and users on earnings and the transformation of earnings for resource allocation decision making; and 3), the direct association between the efficiency of the capital markets and timely provision of earnings data. Each chapter identifies the nature of the issues surrounding the concept of earnings and presents empirical evidence that can be used to make enlightened corporate decisions or to aid in the development of public policy.
Does Investor Sentiment Affect Sell Side Analysts Forecast Bias And Forecast Accuracy
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Author : Beverly R. Walther
language : en
Publisher:
Release Date : 2014
Does Investor Sentiment Affect Sell Side Analysts Forecast Bias And Forecast Accuracy written by Beverly R. Walther and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
We examine the association between investor expectations and its components and sell-side analysts' short-run quarterly earnings forecast bias and forecast accuracy. To measure investor expectations, we use the Index of Consumer Expectations (ICE) survey and decompose it into the “fundamental” component related to underlying economic factors (FUND) and the “sentiment” component unrelated to underlying economic factors (SENT). We find that analysts are the most optimistic and the least accurate when SENT is higher. Management long-horizon earnings forecasts attenuate the effects of SENT on forecast optimism and forecast accuracy. Analysts are also the most accurate when FUND is higher. Last, the market places more weight on unexpected earnings when SENT is high. These findings suggest that analysts are affected by investor sentiment and the market reacts more strongly to unexpected earnings when analyst forecasts are the least accurate. The last result potentially explains why prior research (for example, Baker and Wurgler 2006) finds an association between investor sentiment and cross-sectional stock returns.
Trading On Sentiment
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Author : Richard L. Peterson
language : en
Publisher: John Wiley & Sons
Release Date : 2016-03-21
Trading On Sentiment written by Richard L. Peterson and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-03-21 with Business & Economics categories.
In his debut book on trading psychology, Inside the Investor’s Brain, Richard Peterson demonstrated how managing emotions helps top investors outperform. Now, in Trading on Sentiment, he takes you inside the science of crowd psychology and demonstrates that not only do price patterns exist, but the most predictable ones are rooted in our shared human nature. Peterson’s team developed text analysis engines to mine data - topics, beliefs, and emotions - from social media. Based on that data, they put together a market-neutral social media-based hedge fund that beat the S&P 500 by more than twenty-four percent—through the 2008 financial crisis. In this groundbreaking guide, he shows you how they did it and why it worked. Applying algorithms to social media data opened up an unprecedented world of insight into the elusive patterns of investor sentiment driving repeating market moves. Inside, you gain a privileged look at the media content that moves investors, along with time-tested techniques to make the smart moves—even when it doesn’t feel right. This book digs underneath technicals and fundamentals to explain the primary mover of market prices - the global information flow and how investors react to it. It provides the expert guidance you need to develop a competitive edge, manage risk, and overcome our sometimes-flawed human nature. Learn how traders are using sentiment analysis and statistical tools to extract value from media data in order to: Foresee important price moves using an understanding of how investors process news. Make more profitable investment decisions by identifying when prices are trending, when trends are turning, and when sharp market moves are likely to reverse. Use media sentiment to improve value and momentum investing returns. Avoid the pitfalls of unique price patterns found in commodities, currencies, and during speculative bubbles Trading on Sentiment deepens your understanding of markets and supplies you with the tools and techniques to beat global markets— whether they’re going up, down, or sideways.