Do Institutional Investors Have A More Accurate Pricing Ability On Earnings Information?

As institutional investors play a more and more important role in China's capital markets, more studies highlight the topics about institutional investors, which have great meanings to the development of capital markets. This paper sets "accrual anomaly" proposed by Sloan as research object, and tries to prove the existence of this anomaly in China and examine whether institutional investors show out a more accurate pricing ability than other investors. The empirical results indicate that a relatively "accrual anomaly" does exist, which means the markets overestimate the sustainability of accruals and relatively underestimate the sustainability of cash flows, but in absolute quantity markets overestimate both of them. Facing this relatively "accrual anomaly", how do institutional investors react to it? The empirical results find that institutional investors fail to show out a more accurate pricing ability. On the contrary, after controlling institutional investors' holdings, the markets overestimate the sustainability of accruals and cash flows in a similar level, which means that "accrual anomaly" in China is caused by institutional investors. This paper proves the existence of institutional investors' "accrual preference" from several perspectives and tries to explain this phenomenon.