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Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings

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  • Jong‐Hag Choi
  • Sunhwa Choi
  • Linda A. Myers
  • David Ziebart

Abstract

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. Comparabilité des états financiers et information sur les résultats futurs livrée par le cours des actions Les auteurs constatent que la comparabilité des états financiers accroît l'aptitude des rendements de l'exercice courant à refléter les résultats futurs, mesurée au moyen du coefficient de réaction des résultats futurs (CRRF). Ce constat donne à penser que la comparabilité améliore la valeur informative du cours des actions et permet aux investisseurs de mieux anticiper la performance future de l'entreprise. De plus, en utilisant à la fois le CRRF et les tests de synchronicité du cours des actions, les auteurs observent que la comparabilité augmente le volume d'information propre à l'entreprise (plutôt que le volume d'information relative au marché ou au secteur d'activité) livré par le cours des actions. Les analystes jouent un rôle important dans l'amélioration de la valeur informative du cours des actions en produisant davantage d'information propre à l'entreprise lorsque la comparabilité est élevée. Ces observations permettent de croire que la comparabilité diminue les coûts associés à la collecte et au traitement de l'information propre à l'entreprise.

Suggested Citation

  • Jong‐Hag Choi & Sunhwa Choi & Linda A. Myers & David Ziebart, 2019. "Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 389-417, March.
    • Handle: RePEc:wly:coacre:v:36:y:2019:i:1:p:389-417
    DOI: 10.1111/1911-3846.12442
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