Earnings Transparency and Stock Price Response Delay: Evidence from the U.S.

다국어 초록 (Multilingual Abstract)

Using a sample of the U.S. firms traded on NYSE and NASDAQ from 2000 to 2020, this study investigates the influence of accounting earnings transparency and financial report quality on stock price response delay. When earnings convey opaque and less reflective information about the future cash flows to the capital market, I anticipate that investors are more diversified and hesitant in interpreting current earnings information, delaying their response. Likewise, when earnings become more volatile, causing uncertain and less persistent earnings, investors face difficulty interpreting the inherent effects of current earnings news on future cash flows.
I adopt stock price response delay to information measure (DELAY) and earning transparency measure (TRANS) to investigate how earnings transparency affects price delay. DELAY is a parsimonious measure developed by Hou and Moskowitz (2005) to measure the rapidity of stock prices converging to their fundamental value information. TRANS is introduced by Barth et al. (2013) and represents the level of earnings that describes firm value changes, the earnings informativeness. The more explanatory accounting information is, the less information asymmetry.The results show earnings transparency expedites the market’s reaction and positively affects the stock price formation process. Regarding financial reporting quality, my results are mixed. The divergence between earnings volatility and cash flows volatility negatively affects price response, incorporating less timely value-relevant information. However, it shows that the matching of expenses to revenues does not affect the market’s price formation process.