Between 2000 and 2003 a series of disclosure and analyst regulations curbing abusive financial reporting and analyst behavior were enacted to strengthen the information environment of U.S. capital markets. We investigate whether these regulations reduced security mispricing and increased stock market efficiency. After the regulations, we find a significant reduction in short‐term stock price continuation following analyst forecast revisions and earnings announcements. The effect was more pronounced among higher information uncertainty firms, where we expect security valuation to be most sensitive to regulation. Analyst forecast accuracy also improved in these firms, consistent with reduced mispricing being due to an improved corporate information environment following the regulations. Our findings are robust to controls for time trends, trading activity, the financial crisis, analyst coverage, delistings, and changes in information uncertainty proxies. We find no concurrent effect among European firms and a regression discontinuity design supports our identification of a regulatory effect.

We extend standard models of conditional earnings conservatism and adaptation value to the context of the corporate refocusing activities of UK listed companies. This analysis is interesting because refocusing activities are: (1) commonly anticipated by significant negative returns in the financial year(s) before the refocusing event; (2) typically associated with large material charges; and (3) likely to be part of a strategic plan with the internal decision preceding the formal public announcement. We complement Burgstahler and Dichev [1997] by showing how their nonlinear relation between share prices and earnings changes around refocusing events as adaptation options are exercised. Because refocusing events also involve large realized losses and major changes to firms’ strategic plans, we expect to see systematic changes in the timing relations between stock returns and reported earnings. To capture this, we show how the coefficients of Basu's [1997] model of conditional conservatism change around refocusing events.