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Are Investors Sensitive to the Quality and the Disclosure of Financial Statements?

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  • Birgül Caramanolis-Çötelli
  • Lucien Gardiol
  • Rajna Gibson-Asner
  • Nils S. Tuchschmid

Abstract

This paper investigates the influence of Swiss firms' disclosure policy and of their financial analysts' coverage on stock price abnormal reactions to the publication of the annual reports. It first shows that, after controlling for the number of analysts, the absolute abnormal returns are significantly and positively affected by the rating measure used as a proxy of the informational quality of annual reports. It furthermore emphasises asymmetry in the relationship between stock price abnormal reactions and two informational variables, namely the quality of the firm's disclosure policy and its financial analysts' coverage. It appears that while positive abnormal returns are significantly and positively related to the rating variable, negative abnormal returns are only affected by the number of financial analysts. The inverse relationship between abnormal negative returns and the financial analysts' coverage supports the fact that competition among analysts reduces investors' adverse selection problem. Finally, the study evidences a non-linear relationship between rating and positive abnormal returns which is meaningful for the "good" and "very good type" firms and thus emphasises the signaling role played by a firm's financial disclosure policy.

Suggested Citation

  • Birgül Caramanolis-Çötelli & Lucien Gardiol & Rajna Gibson-Asner & Nils S. Tuchschmid, 1999. "Are Investors Sensitive to the Quality and the Disclosure of Financial Statements?," Review of Finance, European Finance Association, vol. 3(2), pages 131-159.
    • Handle: RePEc:oup:revfin:v:3:y:1999:i:2:p:131-159.
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    File URL: http://hdl.handle.net/10.1023/A:1009855404057
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    Citations

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    Cited by:

    1. George K. Riro & Nelson M. Waweru & Enrico O. Uliana, 2016. "Quality of corporate reporting: case studies from an emerging capital market," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 6(1), pages 31-52.
    2. Pascal Dumontier & Bernard Raffournier, 2002. "Accounting and capital markets: a survey of the European evidence," European Accounting Review, Taylor & Francis Journals, vol. 11(1), pages 119-151.
    3. Ionel Bostan, 2010. "Comparative Study Regarding the Legilative Framework of the Financial Reporting in USA and EU," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(2), pages 28-45, June.
    4. Luzi Hail, 2002. "The impact of voluntary corporate disclosures on the ex-ante cost of capital for Swiss firms," European Accounting Review, Taylor & Francis Journals, vol. 11(4), pages 741-773.
    5. M. Lambert & G. Hübner & P.-A. Michel & H. Olivier, 2006. "International Financial Reporting Standards and Market Efficiency: A European Perspective," LSF Research Working Paper Series 06-04, Luxembourg School of Finance, University of Luxembourg.
    6. Hlaciuc Elena & Socoliuc Marian & Mates Dorel, 2010. "The Ias/Ifrs Standards System Between Harmonization And Deformity," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 868-874, December.

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