Financial Reporting Quality and Idiosyncratic Return Volatility

Posted: 22 Jun 2010

See all articles by Shivaram Rajgopal

Shivaram Rajgopal

Columbia Business School

Mohan Venkatachalam

Duke University - Fuqua School of Business

Date Written: June 21, 2010

Abstract

Campbell, Lettau, Malkiel and Xu (2001) document that firms’ stock returns have become more volatile in the U.S. since 1960. We hypothesize and find that deteriorating earnings quality is associated with higher idiosyncratic return volatility over 1962-2001. These results are robust to controlling for (i) inter-temporal changes in the disclosure of value-relevant information, sophistication of investors and the possibility that earnings quality can be informative about future cash flows; (ii) stock return performance, cash flow operating performance, cash flow variability, growth, leverage and firm size; and (iii) new listings, high-technology firms, firm-years with losses, mergers and acquisitions and financial distress

Keywords: Idiosyncratic Risk, Reporting Quality, Earnings Quality, Volatility

JEL Classification: M41, G12

Suggested Citation

Rajgopal, Shivaram and Venkatachalam, Mohan, Financial Reporting Quality and Idiosyncratic Return Volatility (June 21, 2010). Journal of Accounting & Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1628125

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

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