“…Benos and Jochec (2007) find, counter-intuitively, that the PIN variable is lower in the periods before earnings announcements dates than in the periods after earnings announcements dates. This contradicts prior research which has consistently found that information asymmetry between investors and therefore opportunities for informed trading are the greatest prior to earnings announcements (Brooks, 1996;Christophe et al, 2004;Frazzini and Lamont, 2006). In general, considering (1) the critical role that the accounting process plays in the generation of information, (2) the reliance in extant accounting literature on the interpretation that PIN is priced information risk, and (3) the controversy surrounding whether information risk commands a premium, we believe that it is important to empirically investigate whether information risk, as embodied by PIN, is indeed priced.…”
“…Benos and Jochec (2007) find, counter-intuitively, that the PIN variable is lower in the periods before earnings announcements dates than in the periods after earnings announcements dates. This contradicts prior research which has consistently found that information asymmetry between investors and therefore opportunities for informed trading are the greatest prior to earnings announcements (Brooks, 1996;Christophe et al, 2004;Frazzini and Lamont, 2006). In general, considering (1) the critical role that the accounting process plays in the generation of information, (2) the reliance in extant accounting literature on the interpretation that PIN is priced information risk, and (3) the controversy surrounding whether information risk commands a premium, we believe that it is important to empirically investigate whether information risk, as embodied by PIN, is indeed priced.…”
“…He found that spreads revert to their normal levels within ten days of the announcement. Brooks (1996) looked at the change in the level of information asymmetry around earnings and dividend announcements, u sing a regression-based measure of asymmetric information due to Hasbrouck (1991). He also examined changes in the bid-ask spread.…”
Section: Ii(2) Evidence On Spreads Around Earnings Announcementsmentioning
This paper examines the determinants of inside spreads and their behaviour around corporate earning announcement dates, for a sample of UK firms over the period 1986–94. The paper finds that closing daily inside spreads are affected by order processing costs (proxied by trading volumes), inventory control costs (trading volumes and return variability) and asymmetric information (unusually high trading volumes). Inside spreads start to narrow 15 days before an earnings announcement, and narrow further by the end of the announcement day. We also identify a puzzling phenomenon. There is only a ‘sluggish’ recovery of spreads after the announcement: inside spreads continue to remain at relatively narrow levels, and take up to 90 days to recover to their pre–announcement width.
“…In line with prior literature (Kim/Verrecchia, 1994;Brooks, 1996;Krinskey/Lee, 1996;Gajewski, 1999), as investors need time to incorporate earnings information and as new information asymmetry might be growing quickly, I use short periods excluding the actual event dates to calculate the measure of bid-ask spread change induced by quarterly earnings announcements (ΔBAS i ). Panel A of Table 1 verifies that the average firm experiences a significant decrease in its bid-ask spread around its quarterly earnings announcement periods.…”
Section: Calculation Of the Valuation Usefulness Metricsmentioning
Abstract:In their joint framework project, the FASB and the IASB recently proposed dropping stewardship as a separate objective of financial accounting, because the Boards view stewardship and valuation usefulness as compatible sub-objectives ranking under an overall objective of decision usefulness. This paper puts this conjecture to an empirical test. As it is widely agreed that asymmetric timely earnings increase the contractual efficiency of accounting information, I first test whether firms with more asymmetric timely earnings produce more valuation-useful financial accounting information. Second, I test whether firms with more influential non-equity stakeholders provide more valuation-useful financial accounting information. As non-equity stakeholders in general face higher transaction costs when diversifying unsystematic risk compared to equity stakeholders and as stewardship-related risks should be at least in part unsystematic, I expect the demand for stewardship-related accounting information to increase with the influence of non-equity stakeholders. Using a broad sample of U.S. firms and a set of firm-specific metrics for valuation usefulness based on short-window capital market reactions to quarterly earnings announcements, I document that the valuation usefulness of financial accounting information is consistently negatively related to its stewardshiporientation. I conclude from these analyses that valuation usefulness and stewardship are alternative objectives of financial accounting.
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