The Effect of Accounting Information Quality on the Salience phenomenon

Subject Areas : Management Accounting

Parvaneh Khaleghi Kasbi ¹ , Mohammad Ali Aghaei ² , Farzin Rezaei ³

1 - PhD student, Department of Accounting, Qazvin Branch, Islamic Azad University, Qazvin, Iran
2 - Associate Professor, Department of Accounting, Tarbiat Modares University, Tehran, Iran.
3 - Associate Professor, Department of Accounting, Qazvin Branch, Islamic Azad University, Qazvin, Iran.

Received: 2019-06-10 Accepted : 2019-07-22 Published : 2020-06-21

Keywords: Salience, Overreaction, inappropriate pricing, delayed price adjustment, Accounting Information Quality,

Abstract :

Investors simplify their decisions and judgements through applying rules of thumbs and processing only a part of available information. Salience indicates the events related to available information taking more weight in future judgements. After the formation of financial behavioral theory, the empirical studies have been directed towards the review of relationships between investors tendencies and stock price variations and in this regard, there has been no discussion on which factors affect the behavioral errors of investors and how they can be adjusted; thus, this paper aims to investigate the impact of increased accounting information quality on the decreased salience phenomenon. Therefore, a sample consisting of 600 corporates-years was studied during 2012-2016. the existence of salience phenomenon led to the investors over-reaction followed by inappropriate stock pricing. Thus, when the information quality is high, the relationship between behavioral tensions and stock market price is weaker. Consequently, high quality information reporting can decrease the impact of salient information on investors decisions.

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