An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Yi - Mien Lin
National Chung Hsing University - Taiwan

Chih - Chen Lee
Northern Illinois University - U.S.A.

Che - Hsun Chang
Deloitte & Touche - Taiwan

Abstract: This paper decomposes stock returns and excess returns into intellectual capital news and expected returns news, and induces a variance decomposition model for intellectual capital news and expected returns news. We divide intellectual capital into recorded and unrecorded intellectual capital, and examine the value relevance of expected returns news, recorded and unrecorded intellectual capital news. We also investigate how the US stock market reacts to unexpected stock returns under considering intellectual capital and expected returns news. We find that intellectual capital news is the main driver of stock returns and excess returns. After decomposing intellectual capital into recorded and unrecorded intellectual capital, the recorded intellectual capital news is the dominating driver of stock returns and excess returns. Moreover, the US stock markets “underreact” to recorded intellectual capital news, unrecorded intellectual capital news and expected returns news.

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