Voluntary Disclosure of Accruals in Earnings Press Releases and the Pricing of Accruals

Abstract

Prior studies find that markets fail to quickly and fully impound accruals information into prices. This paper compares the information environment and pricing of firms that voluntarily disclose accruals in their earnings press releases (Disclosers) to those of control firms that disclose the information only in their 10-Q (Filers). I find that the accruals of Disclosers are of lower quality than those of Filers, which indicates that the breakdown of earnings into their accruals and cash flow components is of greater importance to the investors of Disclosers. Testing the pricing of accruals, I find that accruals of Disclosers are fully impounded in prices upon disclosure, but those of Filers are associated with subsequent return drifts. Taken together, the evidence suggests that when higher demand for accruals information exists and firms respond with early disclosures of accruals, the mispricing typically associated with accruals is mitigated.

Keywords: Accrual amonaly, mispricing, voluntary disclosure, preliminary earnings, earnings press releases

JEL Classification: M41, M45, G12, G14