The market pricing of negative special items through time: an unintended consequence of regulation change?

Thomas J. Lopez, Craig A. Sisneros () and Trevor Sorensen
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Thomas J. Lopez: University of Alabama
Craig A. Sisneros: Oklahoma State University
Trevor Sorensen: West Virginia University

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 2, No 13, 753-777

Abstract: Abstract Prior research concludes that the implications of negative special items (NSIs) for future earnings are more fully reflected than earnings before NSIs. Our evidence suggests that US regulatory changes resulted in dramatic increases (decreases) in NSI reporting frequency (magnitude). We find that the advantage in pricing NSIs relative to other components of earnings disappears for the average firm post-regulation and for high frequency NSI reporters regardless of time period. Our evidence suggests that regulations governing the financial reporting of NSIs resulted in unintended consequences by impairing the ability of market participants to understand the future earnings implications of these items.

Keywords: Special items; Earnings components; Restructuring; Goodwill impairment; Special item reporting frequency; Financial regulation; Unintended consequence (search for similar items in EconPapers)
JEL-codes: G14 G30 G34 M41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-019-00806-7

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