Private Information Acquisition and the Probability of Disclosure

Posted: 13 Jul 1998

See all articles by Stephen P. Baginski

Stephen P. Baginski

University of Georgia - J.M. Tull School of Accounting

John M. Hassell

Indiana University Kelley School of Business Indianapolis

John D. Neill

Abilene Christian University - College of Business Administration

Date Written: November 1995

Abstract

This paper tests McNichols and Trueman's (1994) hypothesis that predisclosure private information acquisition and trading is increasing in the probability of disclosure. Using a pair-matched sample of certain earnings releases and less likely management forecasts, evidence consistent with the hypothesis is provided. The proportion of price reaction in predisclosure periods (relative to total price reaction) is greater for actual earnings releases. The results do not depend on whether predisclosure price reaction is measured in absolute terms or incorporates the direction of price movement. Examination of a "forecasts only" subsample shows that more likely and more precise forecasts are not associated with greater predisclosure price movement than less likely and less precise forecasts. The results on forecast precision are consistent with the intuition that the precision effect is likely second order for releases with a low probability of occurrence.

JEL Classification: M41, G12, G14

Suggested Citation

Baginski, Stephen P. and Hassell, John M. and Neill, John D., Private Information Acquisition and the Probability of Disclosure (November 1995). Available at SSRN: https://ssrn.com/abstract=2550

Stephen P. Baginski (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

John M. Hassell

Indiana University Kelley School of Business Indianapolis ( email )

801 W. Michigan Street
Indianapolis, IN 46202-5151
United States

John D. Neill

Abilene Christian University - College of Business Administration ( email )

ACU Box 29329
Abilene, TX 79699
United States
325-674-2053 (Phone)
325-674-2564 (Fax)

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