Investor protection and the information content of annual earnings announcements: International evidence

Are interim management statements redundant?

“…Examining both types of stock-market reaction side by side is consistent with the information content literature -including Beaver (1968), Landsman and Maydew (2002), DeFond et al (2007) and Landsman et al (2012) -which argues that tests of abnormal return variability and abnormal trading volume complement each other. Specifically, we follow Beaver (1968) in arguing that a change in price reflects an average investor's reassessment of future cash flows, and in this way it measures one aspect of information relevance, namely the extent to which investors change their beliefs in aggregate.…”

“…However, whether the associated cost saving is large is unclear, especially in the light of the evidence on the typical length of an IMS in Tables 1 and 2. Before we test H2 and H3, we compare, in Table 4, abnormal return variability and abnormal trading volume associated with first-and third-quarter IMSs against abnormal return variability and abnormal trading volume associated with interim results and preliminary earnings announcements. For that we follow prior research, including Beaver (1968), Landsman and Maydew (2002), DeFond et al (2007) and Landsman et al (2012), and measure abnormal return variability as the ratio of the event window return variability to the non-event window return variability. Specifically, we start by calculating daily market-model adjusted returns, u it , as: where R it is the return of firm i on day t and R Mt is the return of the FTSE All Share Index on day t and where R it and R Mt are calculated from Datastream Return Indices, RI.…”

Are Stewardship and Valuation Usefulness Compatible or Alternative Objectives of Financial Accounting?

“…Beaver, 1968;Lipe, 1990;Landsman/Maydew, 2002;Francis et al, 2002a;DeFond et al, 2007), as it adds to this literature by investigating firm-specific determinants of the information content of financial accounting information. Also, it provides new insights on the determinants and consequences of conservative accounting (e.g.…”

Whither Corporate Russia?

“…For instance, Barberis et al (1998) and Daniel et al (1998) show that investors tend to over-react to a series of good news, even if only in the short-term period. The positive effect of earnings on growth is found to be more widespread in countries with a well-defined legal system, which is characterized by superior insider trading regulations and strong shareholder protection (DeFond et al, 2007). Bhattacharya et al (2000) believe that unrestricted insider trading can lead to all information being absorbed into stock prices prior to the actual announcement, hence no positive effect of earnings on growth.…”