A Study on the Differential Association between Accounting Information and Stock Price in Investor Groups
Asian Tax Journal Vol. 6 No. 4 (2005), pp. 77-97
Abstract
This study empirically analyzed whether the association between accounting information and stock price was different in investor groups such as foreign investors, domestic institutional investors and domestic individual investors. We predicted that the association between accounting information and stock price was different according to the characteristics based on the different investment results in investment groups. Manufacturing companies listed on Korea Stock Exchange was selected as sample in the period of 1993 through 2002. We additionally analyzed the association including discretionary accruals in the empirical models as a control variable. Research results show that the association between accounting information and stock price is significantly positive as foreign investors' equity ratio is high. This association is still significant after controlling the quality of earnings. As domestic individual investor's equity ratio is high, the relationship between accounting information and stock price is significantly negative. This results imply that foreign investors use accounting information more than domestic individual investors in their investment decisions, and supply an indirect evidence that difference in profitability of investors results from the degree of utilization and analysis of accounting information. That means since foreign investors is superior in the ability of use and analysis of accounting information to domestic investors, they realize higher return in investment in stock. Domestic institutional and individual investors are required to improve their abilities of use and analysis of accounting information in their investment decision to narrow the profitability difference.
Keywords
- foreign investors
- domestic institutional investors
- domestic individual investors
- the association between accounting information and stock price
- quality of earnings
Related Articles
Market Uncertainty and the Value Relevance of Earnings
23(3) 69-92
The Effects of Expenses Recognition and Matching Principle between Revenues and Expenses on the Value Relevance
18(2) 79-102
A Study on the Relationship between Book－Tax Differences and Investment Levels Using Preliminary Earnings Announcements
24(3) 169-194
The Effect of Audits of Internal Control over Financial Reporting on Earnings Management：The Role of Internal Accounting Personnel
23(2) 125-152
The Effect of Dividend on Value Relevance of Future Earnings
22(3) 39-68