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

Laura Yue Li
University Of Illinois

Joshua G. Rosett
Claremont McKenna College

Heng Yue
Peking University

Abstract: A key stylized fact about the connection between accounting disclosures and equity prices is that stock price reactions around the time of quarterly earnings announcements have increased over the past twenty years. We examine the roles of detail in income disclosures and institutional ownership as potential alternative explanations for the reaction trend. To implement this, we hand-collect data on income disclosure detail for a large sample of firms from 1980 to 2002. We use raw and normalized returns as alternative measures of the announcement period stock price reaction. We confirm the presence of the time trend for raw returns, and show a smaller but still significant trend for normalized returns. However, our results are inconsistent with the hypothesis that enhanced disclosure detail drives the trend in returns. Rather, we find some evidence consistent with idea that institutional ownership and certain trading characteristics of institutions contribute to the trend.

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