The World Price of Earnings Opacity

52 Pages Posted: 5 Sep 2001

See all articles by Utpal Bhattacharya

Utpal Bhattacharya

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management

Hazem Daouk

Cornell University - School of Applied Economics and Management

Michael Welker

Queen's University - Queen's School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

We analyze the financial statements of 58,653 firm-years from 34 countries for the period 1985-1998 to construct a panel data set measuring three dimensions of earnings opacity for each country - earnings aggressiveness, loss avoidance, and earnings smoothing. We combine these three dimensions to obtain an overall earnings opacity time-series measure per country. We then explore whether earnings opacity affects two dimensions of an equity market in a country - the return the shareholders demand and how much they trade. While not all results are consistent for our three individual earnings opacity dimensions, our panel data tests document that, after controlling for other influences, an increase in overall earnings opacity in a country is linked to an increase in the cost of equity and a decrease in trading in the stock market of that country.

Note: An earlier version of this paper was titled "The World Price of Earnings Management"

Keywords: Earnings Opacity; Cost of Equity; Turnover

JEL Classification: G15, G30, M41, M43

Suggested Citation

Bhattacharya, Utpal and Daouk, Hazem and Welker, Michael, The World Price of Earnings Opacity (September 2002). EFA 2002 Berlin Meetings Presented Paper. Available at SSRN: https://ssrn.com/abstract=282117 or http://dx.doi.org/10.2139/ssrn.282117

Utpal Bhattacharya

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Hazem Daouk

Cornell University - School of Applied Economics and Management ( email )

446 Warren Hall
Ithaca, NY 14853
United States
331-45-78-63-88 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/hd35/

Michael Welker (Contact Author)

Queen's University - Queen's School of Business ( email )

Kingston
Ontario, Ontario K7L 3N6
Canada

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