Do Stock Prices of Property Casualty Insurers Fully Reflect Information about Earnings, Accruals, Cash Flows, and Development?

Do Stock Prices of Property Casualty Insurers Fully Reflect Information about Earnings, Accruals,... This paper examines whether the stock prices of property and casualty (P&C) insurers fully reflect information contained in earnings, cash flows and accruals, and one particular accrual—development of loss reserves. The reserve for policy losses is a major accrual for P&C firms, requires substantial judgment and is the subject of unique disclosures that reveal the ex post error in management estimates. We find that investors underestimate the persistence of cash flows and overestimate the persistence of accruals for P&C insurers, but our evidence suggests the market does not underestimate the persistence of the development accrual. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Do Stock Prices of Property Casualty Insurers Fully Reflect Information about Earnings, Accruals, Cash Flows, and Development?

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1011662825164
Publisher site
See Article on Publisher Site

Abstract

This paper examines whether the stock prices of property and casualty (P&C) insurers fully reflect information contained in earnings, cash flows and accruals, and one particular accrual—development of loss reserves. The reserve for policy losses is a major accrual for P&C firms, requires substantial judgment and is the subject of unique disclosures that reveal the ex post error in management estimates. We find that investors underestimate the persistence of cash flows and overestimate the persistence of accruals for P&C insurers, but our evidence suggests the market does not underestimate the persistence of the development accrual.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 3, 2004

References

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