Abnormal Accrual, Informed Trader, and Long-Term Stock Return: Evidence from Japan

This study examines the association among abnormal accruals, long-term stock returns, and probability of informed trading. Some analytical and empirical research for postearnings announcement drift provide evidence that a high arrival rate of informed traders helps stock prices become more efficient. We focus on the abnormal accrual anomaly, and investigate these studies' implications using data from the Tokyo Stock Exchange in Japan. Consistent with these studies, we show that stocks with a high probability of informed trading exhibit less abnormal accrual mispricing relative to stocks with a low probability of informed trading.Abnormal accruals, Market microstructure, High-frequency data, Informed trader

Reporting of Internal Control Deficiencies, Restatements, and Management Forecasts

We examine the relationship between accuracy in management forecasts and the effectiveness of internal controls by using the unique setting in Japan, where disclosing management forecasts is effectively mandated. Feng et al. (2009) posit and find that managers of firms reporting internal control weaknesses under the Sarbanes-Oxley Act (SOX) report less accurate earnings forecasts compared with other firms in the U.S., where management forecasts are disclosed voluntarily. In line with this notion, our results show that firms disclosing internal control deficiencies and those restating financial highlights report less accurate management forecasts in the Japanese market, where the disclosure of management forecasts are effectively mandated. Furthermore, we find that manager's optimistic biases cause such inaccurate management forecasts. Our results indicate that the effectiveness of internal controls has a significant impact on internal reports, which are used in forming forecasts; therefore, internal control weaknesses induce less accurate management forecasts.

How Do Investors Trade When Actual Earnings Are Reported with Management Forecasts?

We use trade size to distinguish between individuals and institutions and then examine their trading behaviors around earnings announcements using data from the Tokyo Stock Exchange. Japanese listed firms have a distinctive financial reporting system in that they report actual earnings for prior and current years, and in addition, almost all of them release management earnings forecasts for the next year. Under this unique setting, we test whether individuals respond differently from institutions to the same earnings news. We document the following results: (1) With regard to current earnings, individuals (institutions) strongly respond to simplistic random walk forecast errors (analyst forecast errors), while do not always respond to analyst forecast errors (simplistic random walk forecast errors). (2) With regard to management earnings forecasts, both individuals and institutions use them, but individuals react to them literally. In contrast to na¨ıve trading by individuals, institutions rationally respond to them with their predicted optimistic bias in mind. Overall, our results suggest that individuals' trading is so na¨ıve as if they use nothing other than the information released at the time of earning announcement, while institutions' trading is so sophisticated.

Auditor Conservatism, Abnormal Accruals, and Going Concern Opinions

We investigate the Japanese Big 4 auditors' conservatism. Recent increasing litigation risks and scrutiny from the public are likely to make the Japanese Big 4 auditors conservative. Our results indicate that the Big 4 are effective in deterring income-decreasing earnings management by clients. Their motive for doing so may be to avoid scrutiny by the authorities, since financial and tax accounting are strongly aligned in Japan. Furthermore, we show that among firms receiving going concern opinions, those audited by the Big 4 report less negative abnormal accruals than those audited by non-Big 4 This implies that they provoke accrual reversals to the firms whose financial condition is less distressed, when they issue going concern opinions

Cross-Shareholdings and Information EnvironmentMuramiya

We examine the relationship between cross-shareholdings and the information environment. This issue is important because the separation of ownership and control allows managers to act exclusively in their own interests. Despite numerous studies on the influences of other types of ownership structures, including family, institutional investor, and block ownership structures, little is known about how cross-shareholdings influence management incentives. We highlight the Japanese market, where cross-shareholding is historically one of the prominent ownership structures. Using a unique database detailing the level of cross-shareholdings, we find that higher cross-shareholdings relate to (1) greater information asymmetry in the market, (2) higher earnings quality, and (3) lower firm value. The results are consistent with the quiet life hypothesis, which predicts management avoids difficult decisions and costly actions when isolated from market pressures

Fossil decapods from the Upper Quaternary in Shinjima Island in Kagoshima Kyushu, Japan, and description of a new species of ghost shrimp (Axiidea Eucalliacidae)

Ando, Yusuke, Kawano, Shigenori, Muramiya, Yusuke, Niiyama, Sota, Kameyama, Sohiko, Shimoyama, Shoichi (2020): Fossil decapods from the Upper Quaternary in Shinjima Island in Kagoshima Kyushu, Japan, and description of a new species of ghost shrimp (Axiidea Eucalliacidae). Zootaxa 4878 (3): 523-541, DOI: 10.11646/zootaxa.4878.3.