Abstract
We propose that the value of the earnings reporting process as an information source lies in limiting delays in the release of bad news, either by inducing managers to disclose it voluntarily or by directly releasing the negative news that managers have incentives to withhold. We compare earnings informativeness in badnews and good-news quarters. Using returns to measure news, we find, consistent with our prediction, that earnings informativeness relative to other sources is higher in badnews quarters than in good-news quarters. Further, cross-sectional tests indicate that earnings differential informativeness in bad-news quarters is more pronounced when managers do not voluntarily disclose the news, information asymmetry is stronger, and managers are net sellers of stock.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1679-1708 |
| Number of pages | 30 |
| Journal | Accounting Review |
| Volume | 87 |
| Issue number | 5 |
| DOIs | |
| State | Published - Sep 2012 |
Keywords
- Earnings
- Earnings announcements
- Earnings informativeness
- Voluntary disclosure
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
