Investor Protection and Price Informativeness About Future Earnings: International Evidence

Posted: 13 May 2011 Last revised: 2 Dec 2014

See all articles by In-Mu Haw

In-Mu Haw

Texas Christian University - M.J. Neeley School of Business

Bingbing Hu

Hong Kong Baptist University (HKBU)

Jay Junghun Lee

University of Massachusetts Boston

Woody Wu

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Date Written: May 1, 2011

Abstract

This study draws on the investor protection literature to identify structural factors in a country’s information environment that are likely to explain cross-country differences in the extent to which future earnings information is capitalized in current stock returns. Using a sample of 55,900 firm-years from 32 economies, we find that greater financial disclosure, higher quality earnings, and greater information dissemination through news media are associated with stock prices that are more informative about future earnings, whereas strong enforcement of insider trading laws is associated with stock prices that are less informative about future earnings. We also find that, on average, price informativeness about future earnings is greater in countries with strong investor protection. Our results shed light on the importance of structural factors constituting a country’s information environment in explaining cross-country variation in price informativeness about future earnings.

Keywords: price informativeness, future earnings response coefficient (FERC), investor protection institutions, structural factors, cross-country study

JEL Classification: F30, G15, G18, K33, M41

Suggested Citation

Haw, In-Mu and Hu, Bingbing and Lee, Jay Junghun and Wu, Woody Y., Investor Protection and Price Informativeness About Future Earnings: International Evidence (May 1, 2011). Review of Accounting Studies, Vol. 17, No. 2, 2012, pp. 389-419, Available at SSRN: https://ssrn.com/abstract=1838962

In-Mu Haw

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States
817-921-7563 (Phone)
817-921-7227 (Fax)

Bingbing Hu

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

Jay Junghun Lee (Contact Author)

University of Massachusetts Boston ( email )

College of Management
100 Morrissey Blvd.
Boston, MA 02125
United States
(617)287-3181 (Phone)

Woody Y. Wu

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
+852 2609-7834 (Phone)
+852 2603-5114 (Fax)

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