The Relation between Security Returns, Firm Earnings and Industry Earnings

Posted: 19 May 1998

See all articles by Mark H. Lang

Mark H. Lang

University of North Carolina at Chapel Hill

Russell J. Lundholm

University of British Columbia - Sauder School of Business

Abstract

In this paper we examine the relation between a firm's stock return and the earnings of other firms in the same industry, controlling for the firm's own earnings. We present a model in which the sign of this relation depends on the relative uncertainty there is about the size of the total industry value versus the division of that value between firms. We document considerable cross-industry variation in the relation between a firm's return and other firms' earnings, and demonstrate empirically that the sign of the relation depends on information provided prior to the industry earnings announcement period.

JEL Classification: M41, G14

Suggested Citation

Lang, Mark H. and Lundholm, Russell J., The Relation between Security Returns, Firm Earnings and Industry Earnings. CONTEMPORARY ACCOUNTING RESEARCH, Vol 13, No 2, Fall 1996. Available at SSRN: https://ssrn.com/abstract=2670

Mark H. Lang (Contact Author)

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Russell J. Lundholm

University of British Columbia - Sauder School of Business ( email )

2053 Main Hall
Vancouver, British Columbia V6T 1Z2
Canada

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