The Inferential Value of Quarterly Earnings Announcements Relative to Other Sources of Information
C. Catherine Chiang
Yaw M. Mensah
Rutgers Business School - Newark & New Brunswick
December 1, 2006
This paper evaluates the prevalent view that accounting information competes with, but also disciplines, information from other sources by examining the inferential value to investors of accounting versus non-accounting information. Inferential value is defined as the ability of the capital markets to draw the correct inference from the information signals regarding future firm performance. Both average quarterly accounting rate of return on equity and excess stock returns are used as measures of firm performance. The findings indicate that a market-normalized accounting rate of return derived from stock prices and excess returns measured around earnings announcement dates are more highly correlated with changes in future firm performance than similar measures in the non-disclosure periods. The findings support the prevalent view that accounting information disciplines information from other sources.
Number of Pages in PDF File: 41
Keywords: Inferential value, Investor information sources, Investor reaction, Quarterly Earnings
JEL Classification: M41working papers series
Date posted: December 22, 2006 ; Last revised: April 6, 2011
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