Accounting Quality, Stock Price Delay and Future Stock Returns

50 Pages Posted: 11 Jun 2009 Last revised: 13 Jan 2016

See all articles by Jeffrey L. Callen

Jeffrey L. Callen

University of Toronto - Rotman School of Management

Mozaffar Khan

Causeway Capital Management, LLC

Hai Lu

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: May 20, 2011

Abstract

We test the hypotheses that (i) poor accounting quality is associated with delayed stock price adjustment to information, and (ii) the accounting quality component of price delay predicts stock returns. We define accounting quality as the precision with which financial reporting informs equity investors about future cash flows. Consistent with our hypotheses, the results suggest poor accounting quality is associated with less timely price adjustment and higher future stock returns.

Keywords: Accounting Quality, Market Frictions, Stock Price Delay, Expected Returns

JEL Classification: M41, G12, G14

Suggested Citation

Callen, Jeffrey L. and Khan, Mozaffar and Lu, Hai, Accounting Quality, Stock Price Delay and Future Stock Returns (May 20, 2011). Available at SSRN: https://ssrn.com/abstract=1416213 or http://dx.doi.org/10.2139/ssrn.1416213

Jeffrey L. Callen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-5641 (Phone)
416-971-3048 (Fax)

Mozaffar Khan (Contact Author)

Causeway Capital Management, LLC

Hai Lu

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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