Information quality, growth options, and average future stock returns

Matthew Lyle*

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

This study finds that the association between future stock returns and information quality depends on how option-like is the firm’s equity. Firms that have more growth options are more option-like. The association between future stock returns and information quality is negative (positive) for those firms with equity that is least (most) option-like. These results are consistent with traditional asset pricing theory and are robust to numerous empirical specifications. Collectively, these findings offer a theoretically based and empirically supported explanation for why prior studies that do not condition on the option-like nature of equity have documented either a positive or no association between information quality and future average stock returns.

Original languageEnglish (US)
Pages (from-to)271-298
Number of pages28
JournalAccounting Review
Volume94
Issue number1
DOIs
StatePublished - Jan 1 2019

Keywords

  • Expected returns
  • Information quality
  • Option returns

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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