Discussion of “Investor Sophistication and the Mispricing of Accruals”

Discussion of “Investor Sophistication and the Mispricing of Accruals” Collins et al. (2003, this issue) empirically investigate the relation between accruals mispricing and institutional ownership (IO), a proxy for investor sophistication. Their results show that accruals mispricing and IO are negatively correlated; less IO, more accruals mispricing. The authors attribute this differential in accruals mispricing to institutions' superior ability to price accruals either due to superior analytical ability or due to greater access to private information. While the research question is intriguing, a number of methodological limitations may limit the reliability and generality of the findings. In this paper, I discuss these limitations and offer ways of overcoming them, as well as identify a future research avenue in the area of mispricing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Investor Sophistication and the Mispricing of Accruals”

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Publisher
Springer Journals
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1024469513993
Publisher site
See Article on Publisher Site

Abstract

Collins et al. (2003, this issue) empirically investigate the relation between accruals mispricing and institutional ownership (IO), a proxy for investor sophistication. Their results show that accruals mispricing and IO are negatively correlated; less IO, more accruals mispricing. The authors attribute this differential in accruals mispricing to institutions' superior ability to price accruals either due to superior analytical ability or due to greater access to private information. While the research question is intriguing, a number of methodological limitations may limit the reliability and generality of the findings. In this paper, I discuss these limitations and offer ways of overcoming them, as well as identify a future research avenue in the area of mispricing.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 2, 2004

References

  • Do Analysts and Auditors Use Information in Accruals?
    Bradshaw, M.; Richardson, S.; Sloan, R.

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