The effect of overvaluation on investment and accruals: The role of information

Shing Yang Hu, Yueh Hsiang Lin, Christine W. Lai

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    This paper examines whether the effect of overvaluation on accrual and investment is weak in a good information environment using the naive manager hypothesis and the monitoring hypothesis. The results show that CEOs recognize overvaluation and reduce their shareholdings regardless of the extent of the information environment and the naive manager hypothesis is not supported. However, managers in a good information environment do not respond to overvaluation with accrual or investment, and more institutional investors help to reduce overvaluation-driven behaviors. Thus, the monitoring hypothesis is supported. These findings are free from causality concerns and robust for alternative measures of misvaluation.

    Original languageEnglish
    Pages (from-to)181-201
    Number of pages21
    JournalJournal of Empirical Finance
    Volume38
    DOIs
    Publication statusPublished - 2016 Sep 1

    Keywords

    • Accrual
    • Capital investment
    • Earnings management
    • Governance
    • Information
    • Misvaluation

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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