TY - JOUR

T1 - The use of the R2 as a measure of firm-specific information: A cross-country critique

AU - Alves, Paulo

AU - Peasnell, Ken

AU - Taylor, Paul

N1 - This is a pre-print of an article published in Journal of Business Finance and Accounting, 37 (1), 2010. (c) Wiley.

PY - 2010/1

Y1 - 2010/1

N2 - Recent research uses the degree of stock returns co-movement as a measure of the quality of a country's information environment. It has been argued that stronger property rights, better corporate governance regimes and more efficient enforcement mechanisms lead to prices incorporating more firm-specific information and, therefore, co-moving less with the market. In this paper, we use a much more comprehensive international data set than in prior research, encompassing forty countries over twenty years, to evaluate the reliability of this approach in a cross-country setting and to analyse the behaviour of the measure used. Our results demonstrate severe limitations in the use of co-movement as a measure of information quality. We highlight the instability of the measure and show that it can produce results that are often difficult to reconcile with such an informational explanation

AB - Recent research uses the degree of stock returns co-movement as a measure of the quality of a country's information environment. It has been argued that stronger property rights, better corporate governance regimes and more efficient enforcement mechanisms lead to prices incorporating more firm-specific information and, therefore, co-moving less with the market. In this paper, we use a much more comprehensive international data set than in prior research, encompassing forty countries over twenty years, to evaluate the reliability of this approach in a cross-country setting and to analyse the behaviour of the measure used. Our results demonstrate severe limitations in the use of co-movement as a measure of information quality. We highlight the instability of the measure and show that it can produce results that are often difficult to reconcile with such an informational explanation

KW - information • R 2 • firm-specific information • market-wide information • volatility • disclosures • co-movement • cross-country information environment • synchronicity

U2 - 10.1111/j.1468-5957.2009.02181.x

DO - 10.1111/j.1468-5957.2009.02181.x

M3 - Journal article

VL - 37

SP - 1

EP - 26

JO - Journal of Business Finance and Accounting

JF - Journal of Business Finance and Accounting

SN - 1468-5957

IS - 1

ER -