The Information in Governmental Annual Reports: A Contemporaneous Price Reaction Approach

Posted: 16 Jul 2014

See all articles by Robert W. Ingram

Robert W. Ingram

University of Alabama

K. K. Raman

The University of Texas at San Antonio

Earl R. Wilson

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Date Written: July 14, 2014

Abstract

Considerable evidence exists that governmental accounting numbers are related empirically to bond risk and return measures. However, prior research does not preclude the possibility that accounting numbers merely reflect unobserved factors such as economic and political attributes impounded in bond measures. This study considers whether governmental annual financial reports convey new information directly to the bond market. Changes in bond prices during the period around the release date of governmental annual reports were examined to assess market responses to the reports. No significant evidence was obtained to suggest that municipal bond investors use the information in the annual report at the time of its release to adjust bond prices. In contrast, new bond issues and bond rating announcements were associated with significant market reactions. Thus, these results indicate that, while issuer-specific accounting information may be used by bond investors in conjunction with decisions involving new issues and rating evaluations, investors do not appear to impound the information directly into secondary market prices at the time the information is released.

Keywords: Governmental annual reports, bond markets, secondary market prices

JEL Classification: M41

Suggested Citation

Ingram, Robert W. and Raman, K. K. and Wilson, Earl R., The Information in Governmental Annual Reports: A Contemporaneous Price Reaction Approach (July 14, 2014). Accounting Review, Vol. 64, No. 2, 1989 pp. 250-268. Available at SSRN: https://ssrn.com/abstract=2465967

Robert W. Ingram

University of Alabama ( email )

Box 870223
314 Alston Hall
Tuscaloosa, AL 35487-0223
United States
205-348-6694 (Phone)
205-348-8453 (Fax)

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Earl R. Wilson

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

School of Accountancy
Columbia, MO 65211
United States
573-882-3225 (Phone)
573-882-2437 (Fax)

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