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Corporate Sales, Predisclosure Information and Return Variability
Author(s) -
Blazenko George W.
Publication year - 1997
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00136
Subject(s) - margin (machine learning) , liberian dollar , cash flow , operating margin , business , return on assets , accounting , econometrics , economics , finance , profitability index , machine learning , computer science
This paper investigates the determinants of return variability between accounting report and non‐report periods. A model of information dissemination in financial markets is developed which shows that if corporate sales activity is a source of predisclosure information, the ratio of return variability between accounting report and non‐report periods decreases in contribution margin per dollar sales. Greater contribution margin increases that portion of cash flow variability which is predictable by investors' observation of sales activity and, therefore, contribution margin indexes the informativeness of sales‐related predisclosure information. Greater informativeness increases return variability in the predisclosure period relative to the accounting report period. Supporting evidence for this prediction is presented.