Knowledge that Transforms

This paper empirically investigates the relation between investor wealth and the value of annual and quarterly earnings announcements as implied by (1) the behavior of mean stock trade transaction sizes at announcement dates, and (2) transaction size-stratified trading activity in postannouncement time periods. Announcement-period mean transaction sizes are found to exceed expected mean transactions sizes estimated from trading activity occurring in nonannouncement periods. This result is attributed to a greater relative trading response to earnings announcements by wealthier investors, consistent with Ohlson's [1975] proposition that information value increases with investor wealth in a security market setting. Further evidence of a positive relation between value and wealth is found when postearnings announcement stock transactions are stratified by share size into three strata, where the first stratum (small stratum) is transactions of 100 and 200 shares, the second stratum (large stratum) is transactions of 300 to 900 shares, and the third stratum (institutional

Inventory accounting method, LIFO, FIFO, Tax savings

In this study, we investigate whether the security market reaction to the announcement of lower than expected earnings (bad news earnings) is dependent on the fiscal quarter of the announcement (earlier quarters versus fourth quarter). Such dependence could arise from the provisions of generally accepted accounting principles which allow extensive use of managers' fiscal-year expectations when formulating interim cost estimates. These provisions provide managers with a potential means of delaying bad news earnings until the fourth-quarter earnings announcement. Support for the view that managers delay the release of bad news is provided by recent research on the timing of information releases (e.g., the release of bad earnings news, bad dividend news, and bad nonearnings news).' Since managers have the means (through generally accepted accounting principles for interim reporting) and the tendency (as suggested by the empirical evidence on the timing of information releases) to delay bad news, it seems plausible to hypothesize a larger security

Earnings management, Stewardship value of accounting earnings, Overlapping Generations model

John A. Elliott, Wayne H. Shaw, Write-Offs As Accounting Procedures to Manage Perceptions, Journal of Accounting Research, Vol. 26, Studies on Management's Ability and Incentives to Affect the Timing and Magnitude of Accounting Accruals (1988), pp. 91-119

David B. Smith, An Investigation of Securities and Exchange Commission Regulation of Auditor Change Disclosures: The Case of Accounting Series Release No. 165, Journal of Accounting Research, Vol. 26, No. 1 (Spring, 1988), pp. 134-145

Safe harbor lease law, Taxation, Asset restructuring, Stock prices

Robert W. Holthausen, Robert E. Verrecchia, The Effect of Sequential Information Releases on the Variance of Price Changes in an Intertemporal Multi-Asset Market, Journal of Accounting Research, Vol. 26, No. 1 (Spring, 1988), pp. 82-106

Income measurement, Historical cost earnings, ASR No. 190, SFAS No. 33

Private information, Information asymmetry, Information signal, Disclosures