The Effects of Uncertainty on the Informativeness of Earnings: Evidence from the Insurance Industry in the Wake of Catastrophic Events

Posted: 21 Apr 2001

See all articles by Theodore E. Christensen

Theodore E. Christensen

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

Abstract

This study examines the effects of uncertainty associated with large-scale catastrophes on the informativeness of earnings announcements by property and casualty insurers. It contributes to the literature on the effects of uncertainty on the informativeness of earnings announcements by distinguishing between: (1) uncertainty due to exogenous events that obscure the firm's future prospects, and (2) uncertainty due to noise in earnings. Results suggest that heightened uncertainty associated with exposure to catastrophe losses is significantly positively associated with the market's response to earnings reports, even after controlling for uncertainty due to noise in earnings. This implies that during periods of high uncertainty, investors find earnings information more useful in assessing the future prospects of the firm.

Keywords: Information content; Uncertainty; Property and casualty insurance; Catastrophe

JEL Classification: D80, G22, M41

Suggested Citation

Christensen, Theodore E., The Effects of Uncertainty on the Informativeness of Earnings: Evidence from the Insurance Industry in the Wake of Catastrophic Events. Available at SSRN: https://ssrn.com/abstract=261879

Theodore E. Christensen (Contact Author)

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

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

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