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Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings

Research output: Contribution to journalJournal article

E-pub ahead of print
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<mark>Journal publication date</mark>17/07/2018
<mark>Journal</mark>Contemporary Accounting Research
Issue number1
Volume36
Number of pages29
Pages (from-to)389-417
Publication statusE-pub ahead of print
Early online date17/07/18
Original languageEnglish

Abstract

We find that financial statement comparability enhances the ability of current period returns to reflect future earnings, as measured by the future earnings response coefficient (FERC). This suggests that comparability improves the informativeness of stock prices and allows investors to better anticipate future firm performance. In addition, using both the FERC and stock price synchronicity tests, we find that comparability increases the amount of firm‐specific information (rather than market/industry‐level information) reflected in stock prices. Analysts play an important role in improving stock price informativeness by producing more firm‐specific information when comparability is high. These findings suggest that comparability lowers the costs of gathering and processing firm‐specific information. This article is protected by copyright. All rights reserved.

Bibliographic note

This is the peer reviewed version of the following article: Choi, J. , Choi, S. , Myers, L. A. and Ziebart, D. (2019), Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings. Contemp Account Res, 36: 389-417. doi: 10.1111/1911-3846.12442 which has been published in final form at https://onlinelibrary.wiley.com/doi/full/10.1111/1911-3846.12442 This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.