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Bringing the Future Forward: The Effect of Disclosure on the Returns‐Earnings Relation

Bringing the Future Forward: The Effect of Disclosure on the Returns‐Earnings Relation This paper studies how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings. Our results show that firms with relatively more informative disclosures “bring the future forward” so that current returns reflect more future earnings news. We also find that changes in disclosure activity are positively related to changes in the importance of future earnings news for current returns. These results suggest that a firm’s disclosure activity reveals credible, relevant information not in current earnings, and that this information is incorporated into the current stock price. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

Bringing the Future Forward: The Effect of Disclosure on the Returns‐Earnings Relation

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References (25)

Publisher
Wiley
Copyright
University of Chicago on behalf of the Institute of Professional Accounting, 2002
ISSN
0021-8456
eISSN
1475-679X
DOI
10.1111/1475-679X.00072
Publisher site
See Article on Publisher Site

Abstract

This paper studies how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings. Our results show that firms with relatively more informative disclosures “bring the future forward” so that current returns reflect more future earnings news. We also find that changes in disclosure activity are positively related to changes in the importance of future earnings news for current returns. These results suggest that a firm’s disclosure activity reveals credible, relevant information not in current earnings, and that this information is incorporated into the current stock price.

Journal

Journal of Accounting ResearchWiley

Published: Jun 1, 2002

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