Disclosure Quality, Price Efficiency, and Expected Returns

62 Pages Posted: 16 Feb 2018

See all articles by Kung-Cheng Ho

Kung-Cheng Ho

Zhongnan University of Economics and Law; Guangdong University of Finance and Economics

Shih-Cheng Lee

Yuan Ze University

Ping-Wen Sun

Minjiang University - Newhuadu Business School

Date Written: May 17, 2017

Abstract

Using the information rating consisting of disclosure items from five dimensions – regulatory compliance, timeliness, financial forecast, annual report, and corporate website, we examine how a firm’s disclosure quality influences its stock’s price efficiency and expected return in Taiwan stock market. We find the stock of a firm with better disclosure quality reflects both market-wide and firm-specific news more efficiently after controlling investor attention and stock liquidity variables. Furthermore, the component of information rating which is associated with outside governance, inside governance, and turnover of the important position variables also negatively correlates with a firm’s stock price delay. Finally, our findings show that the governance-determined information rating component of stock price delay significantly and positively explains stock returns in the following year, suggesting a negative relationship between a firm’s cost of equity capital and its governance-determined disclosure quality.

Keywords: disclosure quality, information rating, price delay, expected returns, Taiwan stock market

JEL Classification: G11, G14, G34

Suggested Citation

Ho, Kung-Cheng and Ho, Kung-Cheng and Lee, Shih-Cheng and Sun, Ping-Wen, Disclosure Quality, Price Efficiency, and Expected Returns (May 17, 2017). Available at SSRN: https://ssrn.com/abstract=3118179 or http://dx.doi.org/10.2139/ssrn.3118179

Kung-Cheng Ho

Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Guangdong University of Finance and Economics ( email )

Room 339, the 2nd North Building
21th Luntou Road
Guangzhou, 510320
China

Shih-Cheng Lee

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

Ping-Wen Sun (Contact Author)

Minjiang University - Newhuadu Business School ( email )

Fujian
China

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