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Information Quality, Growth Options, and Stock Returns

60 Pages Posted: 16 May 2014 Last revised: 27 Mar 2017

Date Written: March 27, 2017

Abstract

Abstract This study finds that the association between future stock returns and information quality depends on how option-like is the firm's equity. Firms that have more growth options are more option-like. The association between future stock returns and information quality is negative (positive) for those firms with equity that is least (most) option-like. These results are consistent with traditional asset pricing theory and are robust to numerous empirical specifications. Collectively, these findings offer a theoretically-based and empirically-supported explanation for why prior studies, that do not condition on the option-like nature of equity, have documented either a positive or no association between information quality and future average stock returns.

Keywords: Information Quality, Growth Options, Stock Returns, Valuation, Cost of Capital

JEL Classification: G10, G11, G14, M41

Suggested Citation

Lyle, Matthew R., Information Quality, Growth Options, and Stock Returns (March 27, 2017). Available at SSRN: https://ssrn.com/abstract=2437387 or http://dx.doi.org/10.2139/ssrn.2437387

Matthew R. Lyle (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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