Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings

61 Pages Posted: 9 Oct 2013 Last revised: 24 Feb 2017

See all articles by Jong-Hag Choi

Jong-Hag Choi

Seoul National University - College of Business Administration

Sunhwa Choi

Sungkyunkwan University

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

David A. Ziebart

University of Kentucky - Gatton College of Business and Economics

Date Written: February 1, 2017

Abstract

We find that financial statement comparability enhances the ability of current period returns to reflect future earnings, as measured by the future earnings response coefficient (FERC). Thus, comparability improves the informativeness of stock prices and allows investors to better anticipate future firm performance. In addition, using both the FERC and stock price synchronicity tests, we find that comparability increases the amount of firm-specific information (rather than market / industry-level information) reflected in stock prices. Finally, analysts play an important role in improving stock price informativeness by producing more firm-specific information when comparability is high. These findings suggest that comparability lowers the costs of gathering and processing firm-specific information.

Keywords: comparability, future earnings response coefficient (FERC), firm-specific earnings, stock price synchronicity

Suggested Citation

Choi, Jong and Choi, Sunhwa and Myers, Linda A. and Ziebart, David A., Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2337571 or http://dx.doi.org/10.2139/ssrn.2337571

Jong Choi

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Sunhwa Choi (Contact Author)

Sungkyunkwan University ( email )

Sunkyunkwan University Business School
25-2, Sungkyunkwan-ro, Jongno-gu
Seoul, 03063
Korea, Republic of (South Korea)

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

David A. Ziebart

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

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