 |
An International Meeting of American Accounting
Association
|
Do Stock Prices Impound Accounting Information with Similar Precision across Countries? |
Jerry Sun
University of Auckland
Steven F. Cahan
University of Auckland
David Emanuel
University of Auckland
Abstract: This study investigates whether stock prices incorporate accounting earnings with similar precision across countries. We use the association between the earnings-return relation and earnings quality to measure how precisely stock prices impound accounting information. We find that stock prices impound earnings information more precisely in countries with high protection of investor rights, measured by either anti-director rights or legal enforcement. We also find that earnings information is more precisely incorporated into stock prices when a country’s information environment is less opaque, measured by either timeliness of financial disclosure or analyst coverage. Overall, our study documents evidence on the international difference in the ability of stock prices to capture useful accounting information, consistent with the notion that the earnings-return relation reflects not only the quality of accounting earnings but also the quality of stock prices.