Bringing the Future Forward: The Effect of Disclosure on the Returns-Earnings Relation

Posted: 9 Apr 2002

See all articles by Russell J. Lundholm

Russell J. Lundholm

University of British Columbia - Sauder School of Business

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Abstract

This paper studies how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings. Our results show that firms with relatively more informative disclosures "bring the future forward" so that current returns reflect more future earnings news. We also find that changes in disclosure activity are positively related to changes in the importance of future earnings news for current returns. These results suggest that a firm's disclosure activity reveals credible, relevant information not in current earnings, and that this information is incorporated into the current stock price.

Keywords: Disclosure, Stock returns, Earnings

JEL Classification: G12, G14, M41, M45

Suggested Citation

Lundholm, Russell J. and Myers, Linda A., Bringing the Future Forward: The Effect of Disclosure on the Returns-Earnings Relation. Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=303571

Russell J. Lundholm (Contact Author)

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

2053 Main Hall
Vancouver, British Columbia V6T 1Z2
Canada

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

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