Accounting quality and stock price informativeness: a cross-country study

Abstract

This study investigates how accounting quality impacts the incorporation of firm-specific information into stock prices. Using data from 18 developed countries that apply IFRS, during the period 2004–2015, we find strong evidence that supports the hypothesis that accounting quality determines stock price informativeness. The results yield important policy implications because stock prices are a valuable source of information for many users, especially for the management of the listed companies. The study reveals accounting quality’s direct influence over the stock price informativeness, in the way that along with the improvement of accounting quality also increases the amount of firm-specific information embedded into stock prices.

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