Investor preference for local stocks provides a quasi-experimental setting to investigate whether the market rewards firms that comply with generally accepted accounting principles. We show firms with low earnings quality trade at a premium compared to firms in compliance with accounting principles; the difference in values is greater when the role of local investor over-trading is stronger in stock price-formation, in other words for the more isolated firms. The value of the information not conveyed to the market through accounting disclosure accounts for 30% of the market-to-book. Results are robust to earnings quality definition, and show while non-local investors are sensitive to the quality of accounting information, local and better-informed investors are not. Overall, accounting quality matters.

Baschieri, G., Carosi, A., Mengoli, S. (2016). Does the earnings quality matter? Evidence from a quasi-experimental setting. FINANCE RESEARCH LETTERS, 19, 146-157 [10.1016/j.frl.2016.07.006].

Does the earnings quality matter? Evidence from a quasi-experimental setting

BASCHIERI, GIULIA;CAROSI, ANDREA;MENGOLI, STEFANO
2016

Abstract

Investor preference for local stocks provides a quasi-experimental setting to investigate whether the market rewards firms that comply with generally accepted accounting principles. We show firms with low earnings quality trade at a premium compared to firms in compliance with accounting principles; the difference in values is greater when the role of local investor over-trading is stronger in stock price-formation, in other words for the more isolated firms. The value of the information not conveyed to the market through accounting disclosure accounts for 30% of the market-to-book. Results are robust to earnings quality definition, and show while non-local investors are sensitive to the quality of accounting information, local and better-informed investors are not. Overall, accounting quality matters.
2016
Baschieri, G., Carosi, A., Mengoli, S. (2016). Does the earnings quality matter? Evidence from a quasi-experimental setting. FINANCE RESEARCH LETTERS, 19, 146-157 [10.1016/j.frl.2016.07.006].
Baschieri, Giulia; Carosi, Andrea; Mengoli, Stefano
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/587363
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