The Effect of Limited Liability on the Market Response to Disclosure *

The Effect of Limited Liability on the Market Response to Disclosure * Abstract. We formalize the effects of an earnings disclosure on security prices under an assumption of limited liability. We derive various nonlinear relations between equity prices and earnings under a variety of capital structure assumptions and. if possible, we tie the relations attained to results from the existing empirical literature. We also characterize how debt prices respond to earnings when holders of debt have limited liability. Finally, we analyze how changes in the degree of leverage and conversion features of debt affect the relation between price and earnings. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contemporary Accounting Research Wiley

The Effect of Limited Liability on the Market Response to Disclosure *

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Publisher
Wiley
Copyright
1997 Canadian Academic Accounting Association
ISSN
0823-9150
eISSN
1911-3846
D.O.I.
10.1111/j.1911-3846.1997.tb00539.x
Publisher site
See Article on Publisher Site

Abstract

Abstract. We formalize the effects of an earnings disclosure on security prices under an assumption of limited liability. We derive various nonlinear relations between equity prices and earnings under a variety of capital structure assumptions and. if possible, we tie the relations attained to results from the existing empirical literature. We also characterize how debt prices respond to earnings when holders of debt have limited liability. Finally, we analyze how changes in the degree of leverage and conversion features of debt affect the relation between price and earnings.

Journal

Contemporary Accounting ResearchWiley

Published: Sep 1, 1997

References

  • Nonlinearity in the Returns‐Earnings Relation: Tests of Alternative Specifications and Explanations
    Das, Das; Lev, Lev
  • The Information Content of Losses
    Hayn, Hayn

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