The power of firm fundamental information in explaining stock returns

• 成果类型: Article
• 署名作者: Shao, Shuai; Stoumbos, Robert; Zhang, X. Frank
• 署名单位: Zhejiang University; Columbia University; Yale University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-020-09572-7
• 发表日期: 2021
• 页码: 1249-1289
• 关键词: sox section 404; earnings announcements; VALUE-RELEVANCE; QUALITY

摘要

The literature shows that earnings have come to explain less stock price movement over time, suggesting that firm fundamental information has become less important. In this paper, we replace earnings with earnings announcement returns as a measure of firm fundamental news and find that these firm fundamentals have come to explain more price movement over time. In the years after 2003, earnings announcement returns explain roughly 20% of the annual return-almost twice as much as they did before, indicating that fundamental information has become more important, not less, in explaining stock returns. This pattern occurs for other forms of firm fundamental information. Collectively, the returns around earnings announcements, management guidance, analyst forecasts, analyst recommendations, and 8-K filings went from explaining 17% of annual returns on average in the late 1990s to 39% on average in the early 2010s. In exploring possible explanations for the increase in the explanatory power of fundamental information, we find evidence consistent with regulatory changes, such as new 8-K filing requirements and Sarbanes-Oxley, collectively making disclosures more informative.