Articlegreen2018

Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings

Jong‐Hag Choi · Sunhwa Choi · Linda A. Myers · David A. Ziebart

214 citations0/0 files storedContemporary Accounting Research

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Accounting Theory and Financial Reporting

Abstract

ABSTRACT We find that financial statement comparability enhances the ability of current period returns to reflect future earnings, as measured by the future earnings response coefficient (FERC). This suggests that comparability improves the informativeness of stock prices and allows investors to better anticipate future firm performance. In addition, using both the FERC and stock price synchronicity tests, we find that comparability increases the amount of firm‐specific information (rather than market/industry‐level information) reflected in stock prices. Analysts play an important role in improving stock price informativeness by producing more firm‐specific information when comparability is high. These findings suggest that comparability lowers the costs of gathering and processing firm‐specific information.

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References

1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 2002Illiquidity and stock returns: cross-section and time-series effects 2002The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors 1997The conservatism principle and the asymmetric timeliness of earnings1 2000The information content of stock markets: why do emerging markets have synchronous stock price movements?2005The market pricing of accruals quality 2010Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis 2004The Influence of Analysts, Institutional Investors, and Insiders on the Incorporation of Market, Industry, and Firm-Specific Information into Stock Prices

Cited by

2019Accounting Comparability, Financial Reporting Quality, and the Pricing of Accruals 2020Economic policy uncertainty and financial statement comparability 2019Illiquidity and the Measurement of Stock Price Synchronicity 2020Does accounting comparability affect corporate employment decision-making?2020Accounting comparability and the value relevance of earnings and book value

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