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Investor protection and price informativeness about future earnings: international evidence

Author

Listed:
  • In-Mu Haw

    (Texas Christian University)

  • Bingbing Hu

    (Hong Kong Baptist University)

  • Jay Junghun Lee

    (Hong Kong Baptist University)

  • Woody Wu

    (Chinese University of Hong Kong)

Abstract

This study draws on the investor protection literature to identify structural factors in a country’s information environment that are likely to explain cross-country differences in the extent to which future earnings information is capitalized in current stock returns. Using a sample of 55,900 firm-years from 32 countries, we find that greater financial disclosure, higher quality earnings, and greater information dissemination through news media are associated with stock prices that are more informative about future earnings, whereas strong enforcement of insider trading laws is associated with stock prices that are less informative about future earnings. We also find that, on average, price informativeness about future earnings is greater in countries with strong investor protection. Our results illuminate the importance of structural factors constituting a country’s information environment in explaining cross-country variation in price informativeness about future earnings.

Suggested Citation

  • In-Mu Haw & Bingbing Hu & Jay Junghun Lee & Woody Wu, 2012. "Investor protection and price informativeness about future earnings: international evidence," Review of Accounting Studies, Springer, vol. 17(2), pages 389-419, June.
    • Handle: RePEc:spr:reaccs:v:17:y:2012:i:2:d:10.1007_s11142-012-9181-z
    DOI: 10.1007/s11142-012-9181-z
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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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