Information Asymmetry and the Comparative Level of Accounting Accruals
36 Pages Posted: 5 Jul 2011
Date Written: July 3, 2011
Abstract
Arguments about increased (market based) accounting accruals suggest that the information benefits accrue directly to investors (Barth, 2007; Barth et al., 2008). This paper compares Spanish and Australian accruals as a test of relative information asymmetry, measured by the ability of insiders to earn risk and size adjusted returns and to predict future income. We find larger excess returns and higher asymmetry surrounding conditioned insider accrual transactions in Australia. Results are consistent with (i) market based accruals creating asymmetric information that provide a first round information advantage to insiders and financial analysts, and (ii) with Ball et al.’s (2000) argument that information asymmetries in lower accrual based countries are mitigated by economic and institutional features other than the accounting system.
Keywords: Insider trading, earnings predictability, market based accounting accruals, analyst forecasts, information asymmetry
JEL Classification: G10, G14, M41
Suggested Citation: Suggested Citation
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