Knowledge is Power: A Field Experiment in the Chinese and US Stock Markets

We conducted a field experiment by providing knowledge about the pricing implications of accounting accruals to investors in randomized stock groups via social media platforms in both China and the U.S. Treatment stocks experience a reduction in accrual mispricing relative to control stocks, and this effect is strengthened when both conceptual and methodological knowledge about accruals is provided. We also document a real effect of financial knowledge on firms. Treatment firms experience a decline in discretionary accruals in the post-experiment period, especially when they are heavily owned by individual investors or less monitored by institutions.