Francisca Beer, Badreddine Hamdi and Mohamed Zouaoui
The purpose of this paper is to examine whether investors’ sentiment affects accruals anomaly across European countries.
Abstract
Purpose
The purpose of this paper is to examine whether investors’ sentiment affects accruals anomaly across European countries.
Design/methodology/approach
The authors estimate the model using Fama–MacBeth regressions. The sample includes 54,572 firm-year observations for 4,787 European firms during the period 1994–2014.
Findings
The authors find that investors’ sentiment influences accruals mispricing across European countries. The effect is pronounced for stocks whose valuations are highly subjective and difficult to arbitrage. The cross-country analysis provides evidence that sentiment influences accruals anomaly in countries with weaker outside shareholder rights, lower legal enforcement, lower equity market development, higher allowance of accrual accounting and in countries where herd-like behavior and overreaction behavior are strong.
Research limitations/implications
The findings suggest the generalizability of the sentiment-accruals anomaly relation in European countries characterized by different cultural values, levels of economic development and legal tradition.
Practical implications
The findings suggest to caution individuals investors. These investors would be wise to take into account the impact of sentiment on the performance of their portfolio. They must keep in mind that periods of high optimism are accompanied by a high level of accruals and followed by low future stock returns.
Originality/value
The research supplements previous American studies by showing the significance of the level of sentiment in understanding the accruals anomaly in Europe. Hence, it is important for future studies to consider investor sentiment as an important time-series determinant of the accruals anomaly, particularly for stocks that are hard to value and difficult to arbitrage.
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Keywords
Razaz Felimban, Sina Badreddine and Christos Floros
This paper examines the dividend smoothing (DS) behaviour in the Gulf Cooperation Council (GCC) countries in emerging markets where the response to news and the economic…
Abstract
Purpose
This paper examines the dividend smoothing (DS) behaviour in the Gulf Cooperation Council (GCC) countries in emerging markets where the response to news and the economic environment are different from those of developed countries.
Design/methodology/approach
The authors examine the effect of share price informativeness on DS in the GCC markets using unbalanced panel data for a sample of 628 GCC-listed firms during 1994–2016. For the regression analysis, the hypotheses are tested using panel regressions and generalised method of moments (GMM) estimation.
Findings
First, the Lintner model shows that the DS degree in GCC firms is comparable to that of a developed market. Second, and importantly, the results reveal that the DS in GCC firms is sensitive to private information of share prices. Finally, the findings indicate that information asymmetry (IA) and agency-based models affect the tendency to smooth dividends in the GCC markets.
Originality/value
This study is the first study to measure the degree of DS using data for all GCC countries. The authors also identify other determinants of DS behaviour and test the agency and IA explanations for DS in GCC-listed firms. The findings are highly recommended to financial managers and analysts dealing with the GCC markets. This study helps financial analysts to use the share price informativeness as an indicator for the presence of the IA. The study results are beneficial to researchers in understanding the relationship between DS and share price informativeness.
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Fatimazahra Bendriouch, Imad Jabbouri, Mohamed M'hamdi, Harit Satt, Sara Katona and Rhita Serir
This paper explores the factors that shape the complexity of company annual reports in the USA. Using a general-to-specific modeling approach, this study examines the determinants…
Abstract
Purpose
This paper explores the factors that shape the complexity of company annual reports in the USA. Using a general-to-specific modeling approach, this study examines the determinants of annual reports' tone complexity.
Design/methodology/approach
Negative relationships were found between agency problems and tone; agency costs and readability of annual reports; profitability and tone; and ownership structure and tone complexity.
Findings
These relationships helped to confirm several of this study’s hypotheses, whereas positive associations were found between investment growth opportunities and tone complexity, which contradicts one of our initial hypotheses. Findings reveal that the more complex the language in an annual report is, the more difficult it is to strategically make a judgment or decision about the reported financial situation.
Originality/value
Analyzing these variables allows security analysts and investors to obtain important information, not available in the financial statements, which would enhance their understanding of the firm and improve their recommendations and investment decision-making process.