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Earnings comparability and informed trading

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  • Kim, Sangwan
  • Lim, Steve C.

Abstract

We investigate whether earnings comparability is associated with the probability of informed trading (PIN) as a proxy for information asymmetry in the equity market. We measure earnings comparability in three different ways to account for idiosyncratic variation in firm-specific components of earnings using GAAP earnings, special item-adjusted GAAP earnings, and Street earnings. We find that earnings comparability is inversely associated with PIN. The inverse relation between earnings comparability and information asymmetry is pronounced for large and high-analyst coverage firms. Overall, this paper adds to the literature by demonstrating economic benefits of cross-firm properties of accounting information.

Suggested Citation

  • Kim, Sangwan & Lim, Steve C., 2017. "Earnings comparability and informed trading," Finance Research Letters, Elsevier, vol. 20(C), pages 130-136.
    • Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:130-136
    DOI: 10.1016/j.frl.2016.09.013
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    Cited by:

    1. Feng, Wenjun & Wang, Yiming & Zhang, Zhengjun, 2018. "Informed trading in the Bitcoin market," Finance Research Letters, Elsevier, vol. 26(C), pages 63-70.
    2. Kim, Junwoo & Kim, Robert & Kim, Sangwan, 2020. "Does financial statement comparability mitigate delayed trading volume before earnings announcements?," Journal of Business Research, Elsevier, vol. 107(C), pages 62-75.

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    More about this item

    Keywords

    Earnings comparability; Information-based trading; Information asymmetry;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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