Investor protection and price informativeness about future earnings: international evidence

In-Mu Haw (), Bingbing Hu, Jay Junghun Lee and Woody Wu
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In-Mu Haw: Texas Christian University
Bingbing Hu: Hong Kong Baptist University
Jay Junghun Lee: Hong Kong Baptist University
Woody Wu: Chinese University of Hong Kong

Review of Accounting Studies, 2012, vol. 17, issue 2, No 6, 389-419

Abstract: Abstract This study draws on the investor protection literature to identify structural factors in a country’s information environment that are likely to explain cross-country differences in the extent to which future earnings information is capitalized in current stock returns. Using a sample of 55,900 firm-years from 32 countries, we find that greater financial disclosure, higher quality earnings, and greater information dissemination through news media are associated with stock prices that are more informative about future earnings, whereas strong enforcement of insider trading laws is associated with stock prices that are less informative about future earnings. We also find that, on average, price informativeness about future earnings is greater in countries with strong investor protection. Our results illuminate the importance of structural factors constituting a country’s information environment in explaining cross-country variation in price informativeness about future earnings.

Keywords: Price informativeness; Future earnings response coefficient (FERC); Investor protection institutions; Structural factors; Cross-country study (search for similar items in EconPapers)
JEL-codes: F30 G15 G18 K33 M41 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11142-012-9181-z

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