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Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings
Author(s) -
Choi JongHag,
Choi Sunhwa,
Myers Linda A.,
Ziebart David
Publication year - 2019
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12442
Subject(s) - comparability , earnings , stock (firearms) , financial statement , economics , synchronicity , stock market , business , stock price , financial economics , monetary economics , accounting , finance , mathematics , audit , combinatorics , mechanical engineering , paleontology , philosophy , epistemology , horse , series (stratigraphy) , engineering , biology
We find that financial statement comparability enhances the ability of current period returns to reflect future earnings, as measured by the future earnings response coefficient (FERC). This suggests that comparability improves the informativeness of stock prices and allows investors to better anticipate future firm performance. In addition, using both the FERC and stock price synchronicity tests, we find that comparability increases the amount of firm‐specific information (rather than market/industry‐level information) reflected in stock prices. Analysts play an important role in improving stock price informativeness by producing more firm‐specific information when comparability is high. These findings suggest that comparability lowers the costs of gathering and processing firm‐specific information.