Voluntary disclosure and the pricing of earnings components

Abstract

This study examines the association between earnings components, corporate voluntary disclosures and market reactions to the contents of the disclosures. Taiwanese listed firms report substantial non-operating income. I disaggregate earnings into three components: operating income, equity investment income and other non-operating income. I first investigate whether earnings components have different influences on a firm’s voluntary disclosure decision as measured by conference calls. I find that firms with higher operating income and with higher other non-operating income are more likely to hold conference calls. Consistent with the corporate control contest hypothesis, this paper provides evidence on the negative association between a firm’s equity investment income and its decision to hold conference calls. Furthermore, I investigate how voluntary disclosures provided by management during conference calls affect the pricing of earnings components. I find that the mispricing of earnings components are smaller for firms hosting conference calls. My findings suggest that conference calls improve the efficacy of investors’ reactions to earnings announcements in the Taiwanese stock market by conveying information on earnings components.