The Importance of Other Information in Setting Stock Prices: A Cross-Country Comparison

26 Pages Posted: 1 Sep 2004

See all articles by David A. Guenther

David A. Guenther

University of Oregon - Department of Accounting

Kevin Jialin Sun

St. John's University

Date Written: September 1, 2004

Abstract

We investigate the explanatory power that Ohlson's (1995) other information (v) has for explaining stock prices in different countries. We use analysts' earnings forecasts to estimate the value of other information for a sample of public companies in seven industrialized countries. We hypothesize that in those countries where financial accounting earnings are more (less) value relevant, other information will be less (more) important in setting stock prices. We estimate separate firm-level time-series regressions, and our measure of value relevance is the increase in R2 from a regression of prices on book value, residual income, and other information. The increase in R2 from adding residual income to the model is negatively correlated with the increase from adding other information across our sample countries. Our results provide evidence that other information tends to be more (less) value relevant in those countries in which earnings information is less (more) value relevant.

JEL Classification: G12, M41

Suggested Citation

Guenther, David A. and Sun, Kevin Jialin, The Importance of Other Information in Setting Stock Prices: A Cross-Country Comparison (September 1, 2004). AAA 2005 FARS Meeting Paper. Available at SSRN: https://ssrn.com/abstract=586214 or http://dx.doi.org/10.2139/ssrn.586214

David A. Guenther (Contact Author)

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-5384 (Phone)

Kevin Jialin Sun

St. John's University ( email )

8000 Utopia Parkway
Queens, NY 11439
United States

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