Market Effects of Recognition and Disclosure

Journal of Accounting Research, Vol. 41, 2003

44 Pages Posted: 26 Oct 2000 Last revised: 25 Dec 2010

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Greg Clinch

Independent

Toshi Shibano

Thunderbird, School of Global Management - Accounting

Date Written: December 1, 2001

Abstract

Our recognition and disclosure model reveals that accounting expertise acquisition and three informational forces, the quality of the recognized amount, the quality of disclosed information, and the quality of information revealed by price, have offsetting and countervailing effects on market performance. It also reveals that recognition of an accounting amount potentially alters each of these forces and expertise acquisition, thereby affecting market performance. We find that recognition of a highly unreliable accounting amount, rather than simply disclosing it, can result in greater price informativeness. Likewise, recognition of a highly reliable amount can result in lower price informativeness. Our findings suggest that basing recognition decisions on reliability alone is too simplistic: reliability relative to relevance is key, not reliability per se. We also find that recognition and disclosure affect the coefficients in a regression of price on accounting amounts, even when the relevance and reliability of the accounting amounts are the same.

Keywords: Market performance, market effects, accounting, recognition, disclosure

JEL Classification: M41, D82, G14

Suggested Citation

Barth, Mary E. and Clinch, Greg and Shibano, Toshi, Market Effects of Recognition and Disclosure (December 1, 2001). Journal of Accounting Research, Vol. 41, 2003. Available at SSRN: https://ssrn.com/abstract=245971 or http://dx.doi.org/10.2139/ssrn.245971

Mary E. Barth (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Greg Clinch

Independent

No Address Available

Toshi Shibano

Thunderbird, School of Global Management - Accounting ( email )

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