Dr. Zhang's paper accepted by Contemporary Accounting Research

For release:  May 20, 2016

Dr. Joseph Zhang, assistant professor of Accountancy, recently had his paper entitled, "Accounting Quality, Liquidity Risk, and Post-Earnings-Announcement Drift" accepted by i. The paper was co-authored by Dr. Jeff Chen, University of Colorado Boulder, and Dr. Gerald Lobo, University of Houston.

By building on recent market microstructure research, the authors decompose liquidity risk into an accounting-associated component and a non-accounting-associated component and examine their relative importance in explaining post-earnings-announcement drift (PEAD). Findings show that the accounting-associated component has a stronger association with PEAD returns than its non-accounting-associated counterpart, consistent with Sadka (2006)'s suggestion that the information component of liquidity risk is important for explaining PEAD. Results of cross-sectional tests reveal that the relation between accounting-associated liquidity risk and PEAD returns is weaker for firms with greater analyst following. They also found that in a significant market downturn, the relation between accounting-associated liquidity risk and PEAD returns becomes more pronounced.