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

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

doi:10.1016/j.jempfin.2016.06.004

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

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

^*Corresponding author for this work

Department of Business Administration

Research output: Contribution to journal › Article › peer-review

2 Citations (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 language	English
Pages (from-to)	181-201
Number of pages	21
Journal	Journal of Empirical Finance
Volume	38
DOIs	https://doi.org/10.1016/j.jempfin.2016.06.004
Publication status	Published - 2016 Sept 1

Keywords

Accrual
Capital investment
Earnings management
Governance
Information
Misvaluation

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jempfin.2016.06.004

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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.",

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AU - Hu, Shing Yang

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AU - Lai, Christine W.

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N2 - 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.

AB - 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.

KW - Accrual

KW - Capital investment

KW - Earnings management

KW - Governance

KW - Information

KW - Misvaluation

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

Abstract

Keywords

ASJC Scopus subject areas

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