The impact of accounting information quality on the mispricing of accruals: The case of FRS3 in the UK
We exploit a unique setting of accounting regulation change to examine how accounting information quality affects the well-documented accrual anomaly. We show a significant reduction in the negative return predictability of accruals among UK companies with poorer accounting information quality following the introduction of Financial Reporting Standard No. 3: Reporting Financial Performance (FRS3). While the functional fixation hypothesis attributes the mispricing of accruals to the judgemental error of end-users of information, our findings suggest that the supply side of information also plays a crucial role. Our results provide evidence that regulatory interventions seeking to improve accounting information quality can reduce the mispricing of securities in the capital market.
Year of publication: |
2009
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Authors: | Chan, Ann L-C ; Lee, Edward ; Lin, Stephen |
Published in: |
Journal of Accounting and Public Policy. - Elsevier, ISSN 0278-4254. - Vol. 28.2009, 3, p. 189-206
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Publisher: |
Elsevier |
Subject: | Accrual anomaly Accrual quality FRS3 |
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