Abstract
ABSTRACTIt is well recognized that stock prices provide relevant feedback that can guide future firm decisions. This paper develops a model to examine how accounting disclosures affect the decision-usefulness of such stock market reactions. We demonstrate that information in accounting reports can prove useful because it helps observers better interpret and isolate the decision-relevant information embedded in the ensuing stock price reaction. This leads to natural synergies between accounting reports and stock prices in directing firm strategies—the more forward-looking information that can potentially be gleaned from stock prices, the more the firm will invest in improving precision of accounting disclosures even when such disclosures pertain to unrelated current activities.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.