Implications of Strategic Disclosure of Favourable News for Capital Markets Based Research

29 Pages Posted: 29 May 2007

See all articles by Pascal Frantz

Pascal Frantz

London School of Economics

Norvald Instefjord

University of Essex - Essex Business School

Date Written: April 2007

Abstract

This paper derives the implications of strategic disclosure for the earnings-returns relation within a setting derived from Dye (1985), Jung and Kwon (1988), and Ohlson (1995), in which firms' managers disclose favourable earnings forecasts and withhold unfavourable earnings forecasts. It shows that such strategic disclosure by managers leads to concavity in the relation between contemporaneous reported accounting earnings and stock returns. This paper hence provide a new and intuitive explanation for the concavity in this relation reported in empirical studies.

Keywords: Strategic Disclosure, Earnings-Return Relation

JEL Classification: D82, G14, M41, M44, M45

Suggested Citation

Frantz, Pascal and Instefjord, Norvald, Implications of Strategic Disclosure of Favourable News for Capital Markets Based Research (April 2007). Available at SSRN: https://ssrn.com/abstract=987116 or http://dx.doi.org/10.2139/ssrn.987116

Pascal Frantz (Contact Author)

London School of Economics ( email )

Houghton Street
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442079557420 (Fax)

Norvald Instefjord

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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