We examine the association between voluntary corporate disclosure and the informativeness of stock prices. We measure corporate disclosure using the AIMR-FAF annual corporate disclosure ratings. We define price informativeness by the association between current stock returns and future earnings changes: more informative stock price changes contain more information about future earnings changes. To measure this association, we use the multiple regression model of Collins, Kothari, Shanken, and Sloan (1994), wherein current returns are regressed against both current and future earnings changes and future stock returns. The aggregated coefficients on the future earnings changes, which we refer to as the future ERC, is our measure of informativeness (association).We hypothesize and find that greater disclosure is associated with greater price informativeness (i.e., higher future ERC). This is the first empirical evidence that enhanced disclosure results in stock prices that are more informative about future earnings, indicating that greater disclosure provides information benefits to the stock market.

No abstract

This study examines how research and development (R&38;D) and advertising expenditures affect firms' disclosures. Generally accepted accounting principles (GAAP) mandate that these expenditures be immediately expensed in financial reports, despite the fact that they often benefit the firm for longer periods. Prior studies find, however, that investors consider intangible assets in their valuation of firms. These studies argue that current GAAP, by not recognizing the value generated by these assets, severely impairs the usefulness of accounting reports. I investigate if firms with higher levels of R&38;D and advertising expenditures place greater reliance on voluntary, and therefore more flexible, disclosures such as voluntary publications and investor relations. Using analysts' ratings of firms' disclosures, I find that firms with higher levels of intangible assets are more likely to receive significantly higher ratings for their investor relations programs or voluntary publications than for their annual reports. These findings suggest that firms with higher levels of intangible assets emphasize supplemental disclosures because mandated accounting disclosures inadequately present their financial performance. These results have important policy implications for regulators and investors since they indicate that voluntary disclosures, which are unregulated and unaudited, are an important means of disclosure for these firms. Copyright Blackwell Publishers Ltd 2002.

No abstract

This paper examines corporate signaling practices in a framework that includes dividends, stock repurchases, and accounting disclosures. Using analysts' ratings of firms' disclosure practices as a proxy for the level of accounting disclosures, this study investigates the substitutability among these signals. Prior studies have questioned how costly signals, such as dividends and stock repurchases, coexist with presumably less costly alternatives, such as annual reports or other accounting disclosures. The signaling models in the finance literature generally assume that because of the problems of moral hazard, accounting disclosures are not viewed credibly by investors. This study presents evidence for an alternative explanation. For some firms, dividends and stock repurchases may be less costly than accounting disclosures. Prior studies model the trade-off the firm faces between the benefits of conveying favorable information to the financial markets and its need to protect proprietary information from potential competitors. Consistent with the predictions of these studies, my results indicate that “good news” firms that operate in markets with lower industry concentration ratios, and therefore lower entry barriers, are more likely to convey favorable news via dividends or stock repurchases instead of accounting disclosures. These firms appear to rely on dividend and stock repurchase signals as a means of conveying favorable news to investors without releasing specific proprietary information.