TY - JOUR
T1 - Accounting Information Quality and the Clustering of Stock Prices
AU - Baig, Ahmed
AU - Blau, Benjamin M.
AU - Hao, Jie
N1 - Publisher Copyright:
© The Authors 2020, CC BY-NC.
PY - 2020
Y1 - 2020
N2 - The foundation of economic theory is based on the premise that prices will converge to their equilibrium value. However, prior research has documented that stock prices cluster on round pricing increments. In this study, we develop and test the hypothesis that audit quality and the management of earnings-both of which affects the information environment of the firm-influence the degree of price clustering. Results show that firms with Big 4 auditors have less clustering in their stock prices while firms with higher abnormal audit fees, more discretionary accruals, and firms that tend to manipulate earnings have a higher degree of price clustering. These findings support our hypothesis and suggest that accounting information quality helps explain the price clustering anomaly and subsequently influences the efficiency of financial markets.
AB - The foundation of economic theory is based on the premise that prices will converge to their equilibrium value. However, prior research has documented that stock prices cluster on round pricing increments. In this study, we develop and test the hypothesis that audit quality and the management of earnings-both of which affects the information environment of the firm-influence the degree of price clustering. Results show that firms with Big 4 auditors have less clustering in their stock prices while firms with higher abnormal audit fees, more discretionary accruals, and firms that tend to manipulate earnings have a higher degree of price clustering. These findings support our hypothesis and suggest that accounting information quality helps explain the price clustering anomaly and subsequently influences the efficiency of financial markets.
KW - Big 4
KW - Earnings Manipulation
KW - Price Clustering
KW - Round Prices
UR - http://www.scopus.com/inward/record.url?scp=85148750227&partnerID=8YFLogxK
U2 - 10.37625/abr.23.2.182-210
DO - 10.37625/abr.23.2.182-210
M3 - Article
AN - SCOPUS:85148750227
VL - 23
SP - 182
EP - 210
JO - American Business Review
JF - American Business Review
IS - 2
ER -