Did Analysts Contribute to the Disappearance of the Accrual Anomaly? Our results conflict with the widely-held notion that analysts are sophisticated information intermediaries who improve market efficiency

May 30, 2013 Leave a comment

Did Analysts Contribute to the Disappearance of the Accrual Anomaly?

Sami Keskek University of Arkansas – Sam M. Walton College of Business

Senyo Y. Tse Texas A&M University – Lowry Mays College & Graduate School of Business

May 20, 2013

Abstract: 
We use the recent disappearance of the accrual anomaly to investigate analysts’ contribution to improved information processing by investors. Prior research finds that investors and analysts made similar accrual-related pricing and forecast errors, respectively, in the anomaly period. As sophisticated information intermediaries, analysts could have initiated the disappearance of the anomaly by issuing forecasts that are free of accrual-related bias. We find, however, that both expert (e.g., all-star) and non-expert analysts continue to issue forecasts with predictable accrual-related bias after the disappearance of the accrual anomaly. Furthermore, the accrual anomaly is similar for firms followed by analysts and for non-followed firms, and disappears at the same time for both. Thus, investors began to correctly incorporate accruals information in security prices even though analysts continued issuing earnings forecasts that have predictable accrual-related bias. Our results conflict with the widely-held notion that analysts are sophisticated information intermediaries who improve market efficiency.

Filed under Research

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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