We study the effect of board size on firm value in Australia. Using a large sample of Australian firms over the period 2001-2011, we find strong evidence of a negative relationship. We show that firms with a large board are associated with CEO compensation that is sensitive to firm size, but not to firm performance. This incentive to accumulate assets is congruent with the fact that firms with a large board also exhibit lower operating performance and higher operating costs. Furthermore, we find that the effect of board size is stronger in small firms. This result might explain why earlier studies, which focused on large Australian firms, found board size to have little impact on firm value.

We construct a measure of the speed with which forecasts issued by sell‐side analysts accurately forecast future annual earnings. Following Marshall, we label this measure earnings information flow timeliness (EIFT). This measure avoids the aggregation problem inherent in price‐based measures of information efficiency. We document large variation in EIFT across firm‐years, and show that EIFT is positively associated with the extent of analyst following, consistent with increased analyst coverage improving the speed with which earnings‐related information is recognised. We also find that EIFT is higher for firm‐years classified as ‘bad news’ (i.e., where analysts’ forecasts at the start of the financial period exceed the reported outcome). However, when we separately consider instances where analysts appear to forecast non‐GAAP (or ‘street’) earnings rather than GAAP earnings, we find that the greater timeliness of bad news is concentrated among observations where analysts forecast non‐GAAP earnings, where unusual items are typically excluded. We conclude that the market for accounting information is more efficient for negative operating outcomes than for negative outcomes reflecting unusual items.

No abstract

Using a method that avoids the need to specify earnings expectations, we demonstrate that the period surrounding the semi‐annual announcement of Australian firms' earnings is, on average, an important source of information. Although there is substantial year‐to‐year variation, we observe no evidence of any significant time trend, and also conclude that a shift from Australian domestic generally accepted accounting principle to International Financial Reporting Standards did not impact the association between earnings announcement windows and stock returns. We also find no evidence that the informativeness of earnings announcements varies systematically with firm size, analyst following or economic news (i.e., positive vs. negative stock returns, profits vs. losses), although we do observe significant variation across industries. Our conclusion is further supported by contrasting the earnings release date with the days immediately prior to release, or high information days other than earnings announcement windows. Using a more precise event window relative to prior studies (i.e., 3 h vs. 3 days), we confirm that earnings announcements contain significant new information about fundamentals.

No abstract