Do managers credibly use accruals to signal private information? Evidence from the pricing of discretionary accruals around stock splits

Do managers credibly use accruals to signal private information? Evidence from the pricing of... Prior studies suggest that managers use their reporting discretion to signal private information. However, because managers are often assumed to use their discretion to mislead investors, discretionary accruals might be regarded as opportunistic. We posit that combining the accrual signal with other signals may be an effective means of communicating private information. One such signal is stock splits. The stock split signal lends credibility to the accrual signal whereas the accrual signal reinforces the split signal. Accordingly, we find that, at the split announcement, the market construes the pre-split abnormal accrual as a signal of managerial optimism rather than managerial opportunism. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Do managers credibly use accruals to signal private information? Evidence from the pricing of discretionary accruals around stock splits

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Publisher
Elsevier
Copyright
Copyright © 2005 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2004.07.004
Publisher site
See Article on Publisher Site

Abstract

Prior studies suggest that managers use their reporting discretion to signal private information. However, because managers are often assumed to use their discretion to mislead investors, discretionary accruals might be regarded as opportunistic. We posit that combining the accrual signal with other signals may be an effective means of communicating private information. One such signal is stock splits. The stock split signal lends credibility to the accrual signal whereas the accrual signal reinforces the split signal. Accordingly, we find that, at the split announcement, the market construes the pre-split abnormal accrual as a signal of managerial optimism rather than managerial opportunism.

Journal

Journal of Accounting and EconomicsElsevier

Published: Jun 1, 2005

References

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