Stock Price Behavior Around Announcements of Write-Offs

Posted: 24 Sep 1999

See all articles by Eli Bartov

Eli Bartov

NYU Stern School of Business

Frederick W. Lindahl

George Washington University - Department of Accountancy

William E. Ricks

Rosenberg Institutional Equity Management

Abstract

Is it plausible that important corporate events such as write-offs, averaging around 20% of firms? market values, are associated with stock-price responses of less than 1%? We investigate this question by observing a lengthy period before and after the announcement date. We find, as suggested by previous studies, that price declines precede write-off announcements. We find what has not been found before: abnormal returns continue to decline after the announcement by as much as 21% annually for a two-year period. This significant stock-price underperformance is also observed around subsequent earnings announcements, and is robust to various risk-adjustment techniques. Our findings are important on two counts: they (1) suggest that disclosure standards may not be sufficient to allow market agents to understand the economic consequences of the write-offs, and (2) reveal a substantial mispricing, which is inconsistent with market efficiency.

JEL Classification: M41, G14

Suggested Citation

Bartov, Eli and Lindahl, Frederick W. and Ricks, William E., Stock Price Behavior Around Announcements of Write-Offs. Review of Accounting Studies, Vol 3, No 4, 1998, Available at SSRN: https://ssrn.com/abstract=167150

Eli Bartov (Contact Author)

NYU Stern School of Business ( email )

44 W. 4th Street, Suite 10-96
New York, NY 10012
United States
212.998.0016 (Phone)

Frederick W. Lindahl

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States
202-994-5639 (Phone)
202-994-5164 (Fax)

William E. Ricks

Rosenberg Institutional Equity Management

4 Orinda Way
Orinda, CA 94563
United States
925-253-3359 (Phone)

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