Accounting information quality and cumulative abnormal return with emphasis on institutional ownership and trading volume: A linear and nonlinear approach

Document Type : Research Paper

Authors

1 Master of Accounting, Shahid Bahonar University of Kerman

2 Master of Accounting, Shahid Bahonar University of Kerman, Iran

Abstract

Introduction

The primary purpose of accounting is to provide the information that is needed for sound economic decision making. Accounting information includes information contained in financial statements that the manner and extent of the quality of the content and its presentation, influences the decision of investors. Thus, by observing information and valuing stocks in the market based on this information, investors can predict the return on purchases of companies' stocks and make their decisions accordingly. Therefore, the purpose of this study is to investigate the effect of accounting information quality on the abnormal return and the nonlinear effect of institutional shareholders and the linear effect of trading volume on this the relationship.
 

Research hypothesis

Based on the theoretical foundations and research background and to achieve the objectives of the research, research hypotheses are formulated as follows:
Hypothesis 1: There is a positive and significant relationship between the quality of accounting information and cumulative abnormal returns.
Hypothesis 2: Institutional shareholders have an asymmetric (U-shaped) effect on the relationship between the quality of accounting information and cumulative abnormal returns.
Hypothesis 3: Trading volume strengthens the relationship between the quality of accounting information and the cumulative abnormal returns.
 

Methods

This research is applied in terms of purpose-based classification and is descriptive-correlational in nature and method. To test the research hypotheses, regression estimation method was used to examine the linear relationships and panel smooth transfer method (PSTR) was used to examine the nonlinear relationship. The statistical population of this study is the companies listed on the Tehran Stock Exchange and to achieve the purpose of the research, by filtering, the data of 160 companies listed on the Tehran Stock Exchange and in the period 2012-2020 were analyzed.
 

Results

Findings showed that there is a significant relationship between the quality of accounting information and cumulative abnormal returns. Institutional shareholders, however, asymmetrically moderate the relationship between the quality of accounting information and the cumulative abnormal returns. This means that institutional shareholders up to 41% ownership level have a positive effect on the relationship between accounting quality and cumulative abnormal returns and institutional ownership levels of more than 41% have a negative and significant effect on the relationship between accounting quality and cumulative abnormal returns. Also, trading volume modulates the relationship between the quality of accounting information and the cumulative abnormal returns.
 

Discussion and Conclusion

Companies with better accounting information are more aware of their stock prices, and this transparency leads to the formation of investor demand, and they predict the stock returns of these companies. The results showed that companies that provide better accounting information, will have more reliable stock return and the least deviation. Also, at institutional ownership levels of more than 41%, institutional shareholders negatively adjust the impact of accounting information quality on the cumulative abnormal returns. Finally, it was found that trading volume weakened the positive effect of the quality of accounting information on the cumulative abnormal returns. The reason for this is probably the increase in the number of buyers and sellers and, ultimately, fluctuations in stock prices.
 
 
 
 
 

Keywords

References

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History

  • Receive Date: 17 May 2022
  • Revise Date: 18 September 2022
  • Accept Date: 20 September 2022

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