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Corporate Disclosure Policy and the Informativeness of Stock Prices

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  • David S. Gelb
  • Paul Zarowin

Abstract

We examine the association between voluntary corporate disclosure and the informativeness of stock prices. We measure corporate disclosure using the AIMR-FAF annual corporate disclosure ratings. We define price informativeness by the association between current stock returns and future earnings changes: more informative stock price changes contain more information about future earnings changes. To measure this association, we regress current returns against (current and) future earnings changes. The aggregated coefficient on the future earnings changes, which we refer to as the future ERC, is our measure of informativeness (association). We hypothesize and find that greater disclosure is associated with stock prices that are more informative about future earnings (i.e., higher future ERC). These results provide empirical support for the widely held, but heretofore empirically undocumented, belief that greater disclosure provides information benefits to investors.

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  • David S. Gelb & Paul Zarowin, 2002. "Corporate Disclosure Policy and the Informativeness of Stock Prices," Review of Accounting Studies, Springer, vol. 7(1), pages 33-52, March.
    • Handle: RePEc:spr:reaccs:v:7:y:2002:i:1:d:10.1023_a:1017927530007
    DOI: 10.1023/A:1017927530007
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Benjamin C. Ayers & Robert N. Freeman, 2003. "Evidence that Analyst Following and Institutional Ownership Accelerate the Pricing of Future Earnings," Review of Accounting Studies, Springer, vol. 8(1), pages 47-67, March.
    3. Paul Hribar & Todd Kravet & Ryan Wilson, 2014. "A new measure of accounting quality," Review of Accounting Studies, Springer, vol. 19(1), pages 506-538, March.
    4. Jong-Hag Choi & Linda A. Myers & Yoonseok Zang & David A. Ziebart, 2011. "Do management EPS forecasts allow returns to reflect future earnings? Implications for the continuation of management’s quarterly earnings guidance," Review of Accounting Studies, Springer, vol. 16(1), pages 143-182, March.
    5. Stephen Brown & Stephen A. Hillegeist, 2007. "How disclosure quality affects the level of information asymmetry," Review of Accounting Studies, Springer, vol. 12(2), pages 443-477, September.
    6. Paulo Pereira Silva, 2025. "Non-financial disclosure and stock price informativeness: the role of country-level institutional factors," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 39(2), pages 225-258, June.

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