Reporting Timeliness, Private Information and Stock Price Synchronicity Morck et al. (2000) Revisited

Abstract

Morck et al. (2000) argue that lack of private property protection discourages informed traders from capitalizing on firm private information which incorporates more market risk in stock returns. This paper extends Morck et al. (2000) investigations and suggests alternatively that firm corporate transparency namely frequent reporting motivates private information flow into stock prices. It also suggests that private property protection is associated with less market risk noise and not more firm-specific information. These results are consistent with Jin and Myers (2006) who suggest that insiders in opaque firms are reluctant to release firm information during normal and momentum earnings leading to more systematic risk in share prices. The findings suggest that firm timely reporting convey relevant expected cash flow information that motivates risk arbitrageurs to trade on firm private information and incorporate more firm-specific information into stock returns.

Keywords: Corporate transparency, Timely reporting, Private information, Firm specific information

JEL Classification: G12, G14, G15, M4