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Investors Behavior, Governance andEarnings Management: Under andover Reaction to Information

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  • Afraa Khzouri

    (ESC Tunis, Campus Universitaire, La Manouba 2010, Tunisia)

  • Amira Neffati

    (ISG Tunis, 41, Rue de la Liberté, Le Bardo 2000, Tunisia)

Abstract

The aim of this paper is to study the relationship between earnings management, governance and investors behavior, since this latter can inform about the nature of earnings management and can be considered as a governance mechanism to reduce accounts manipulations.On the basis of a sample of 700 American firms for the period of 1996-2006, our empirical results show that investors who take short positions, are able to interpret the information detected from the earnings management. The activity of these investors may be considered as an indicator of the quality of the governance structure and the presence and nature of earnings management.The under-reaction of investors to information leadsto short-term sale of the shares of poorly governed firms and characterized by an opportunistic earnings management andto invest in firms well-governed and characterized by an informational earnings management thereforean abnormal profitcan be realized.

Suggested Citation

  • Afraa Khzouri & Amira Neffati, 2014. "Investors Behavior, Governance andEarnings Management: Under andover Reaction to Information," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 3(3), pages 53-63, July.
    • Handle: RePEc:rbs:ijfbss:v:3:y:2014:i:3:p:53-63
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    References listed on IDEAS

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