Accounting Quality, Stock Price Delay and Future Stock Returns
50 Pages Posted: 11 Jun 2009 Last revised: 13 Jan 2016
Date Written: May 20, 2011
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: Suggested Citation