The Importance of Other Information in Setting Stock Prices: A Cross-Country Comparison
26 Pages Posted: 1 Sep 2004
Date Written: September 1, 2004
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: Suggested Citation