The Differential Timeliness of Stock Price in Incorporating Bad versus Good News and the Earnings-Return Asymmetry

• 成果类型: Article
• 署名作者: Cheng, Zhuo (June); Fang, Jing (Bob); Myers, Linda A.
• 署名单位: Hong Kong Polytechnic University; Hong Kong Metropolitan University; University of Central Arkansas; University of Tennessee System; University of Tennessee Knoxville
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2018-0629
• 发表日期: 2023
• 页码: 97-124
• 关键词: cross-section; conditional conservatism; institutional investors; ACCOUNTING EARNINGS; FULLY REFLECT; SHORT-SELLERS; Cash flows; MARKET; liquidity; INFORMATION

摘要

The larger association between earnings and contemporaneous returns for negative returns than for positive returns is often attributed to conditional conservatism. We reason that this asymmetry may also be driven by the lack of timeliness with which stock price incorporates bad news relative to good news. Consistent with our reasoning, we show that when stock price incorporates bad news with delay, the asymmetry can exist in the absence of conditional conservatism. This suggests the testable hypothesis that the asymmetry decreases (increases) with factors that facilitate (impede) the incorporation of bad news into stock price. Using stock liquidity to test this hypothesis, we find that the earnings-return asymmetry decreases as stock liquidity increases. Our findings support the view that variation in the earnings-return asymmetry also reflects variation in the quality of the return generation process. Data Availability: Data are available from public sources cited in the text.