The Information Content of Corporate Earnings: Evidence from the Securities Exchange Act of 1934
55 Pages Posted: 25 Jun 2020
Date Written: June 1, 2020
We examine whether the Securities Exchange Act of 1934 increased the information provided in accounting disclosures. Prior research examining the effects of the Act generally relies on long- window tests and yields mixed results. We improve upon prior designs by examining return, return volatility, and trading volume reactions to earnings news during short earnings announcement windows, which mitigates concerns that our results are driven by confounding events. Further, we employ a difference-in-differences design to control for potential contemporaneous structural changes. We document that the informativeness of earnings announcements of treatment firms (that withheld disclosure before the Act) increases relative to control firms (that disclosed voluntarily before the Act). The results are pronounced for large firms (higher regulatory scrutiny) and firms that do not pay dividends (possibly facing higher agency costs), and are symmetric for positive and negative earnings news.
Keywords: Mandatory disclosure, Earnings announcements, Information content
JEL Classification: G14, G18, M40, M41, M48
Suggested Citation: Suggested Citation