Individual and Institutional Investors’ Response to Earnings Reported by Conservative and Non‐Conservative Firms: Evidence from Chinese Financial Markets

50 Pages Posted: 20 Apr 2016

See all articles by Bikki Jaggi

Bikki Jaggi

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Steven Shuye Wang

School of Business, Renmin University of China

Wei Li

Guangdong Institute of Enterprise Development

Date Written: June 2016

Abstract

In this study, we document that there are significant differences in individual and institutional investors’ perception and interpretation of information based on accounting conservatism, as reflected by their trading behavior in the Chinese financial market. Our findings show that institutional investors, who are more sophisticated and have better skills, engage in higher purchases of equities of firms that use high accounting conservatism compared to the firms that use low/no accounting conservatism. Institutional investors’ equity purchases are even higher if these firms are associated with higher growth opportunities. On the other hand, individual investors are attracted more by the attention‐grabbing events and are motivated to purchase equities of firms that either do not use accounting conservatism or use low accounting conservatism, and their purchases are even higher when the firms report positive earnings surprises. Additionally, we find that abnormal returns are higher for the firms using high accounting conservatism and have experienced higher purchases by institutional investors.

Suggested Citation

Jaggi, Bikki and Wang, Steven Shuye and Li, Wei, Individual and Institutional Investors’ Response to Earnings Reported by Conservative and Non‐Conservative Firms: Evidence from Chinese Financial Markets (June 2016). Journal of International Financial Management & Accounting, Vol. 27, Issue 2, pp. 158-207, 2016, Available at SSRN: https://ssrn.com/abstract=2767228 or http://dx.doi.org/10.1111/jifm.12047

Bikki Jaggi (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

100B Rockafeller Road
Piscataway, NJ 08854
United States

Steven Shuye Wang

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

Wei Li

Guangdong Institute of Enterprise Development ( email )

5807 S. Woodlawn Ave
Chicago, IL 60610
United States

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