Ball and Brown (1968) After Fifty Years

“Ball and Brown (1968) after 50 years.” Pacific-Basin Finance Journal 53 (2019) 410–431. doi: 10.1016/j.pacfin.2018.12.008

36 Pages Posted: 15 Jan 2019

See all articles by Ray Ball

Ray Ball

University of Chicago - Booth School of Business

Philip R. Brown

UWA Business School, M250; Financial Research Network (FIRN)

Date Written: December 19, 2018

Abstract

The Editor commissioned this replication of Ball and Brown (1968) for a special issue of the Pacific-Basin Finance Journal commemorating the 50th anniversary of its publication. We also describe the background to the original paper and its research design, and offer observations on its interpretation, its impact on the literature and practice, some negative consequences, and its relation to papers published around the same time. One of the pleasing attributes of our original paper is that its results consistently replicate, the implication being that the research design and its implementation uncovered a universal relation between accounting earnings and changes in firm values. The current replication is in two dimensions: time; and geography, with an emphasis on Pacific Basin countries. In the USA and in a selection of 16 other countries, annual accounting earnings continue to contain a large proportion of the information that investors trade into share prices over the year, though not in a timely fashion. Post earnings announcement drift, the first acknowledged share market anomaly, continues today despite being reported five decades ago. One change is that reporting lags internationally have shortened on average and their range has narrowed. A notable change in USA data is that the proportion of the information incorporated in share prices that is contemporaneously incorporated in annual accounting earnings has declined, though the conclusions we draw from this decline are more cautious than in Lev and Gu (2016).

Keywords: anomaly, Ball and Brown (1968), earnings, EPS, event study, market efficiency, PEAD, replication, research design, stock returns, timeliness, value relevance

JEL Classification: B26, B41, G12, G15, M41

Suggested Citation

Ball, Ray and Brown, Philip R., Ball and Brown (1968) After Fifty Years (December 19, 2018). “Ball and Brown (1968) after 50 years.” Pacific-Basin Finance Journal 53 (2019) 410–431. doi: 10.1016/j.pacfin.2018.12.008 . Available at SSRN: https://ssrn.com/abstract=3304777

Ray Ball (Contact Author)

University of Chicago - Booth School of Business ( email )

Philip R. Brown

UWA Business School, M250 ( email )

Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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