Knowledge that Transforms

Stock pride change associated with a given unexpected earnings change (the earnings response coefficient) exhibits cross-sectional and temporal variation. We predict and document evidence that the earnings response coefficient is a function of riskless interest rates and the riskiness, growth and/or persistence of earnings. The earnings response coefficient also varies cross-sectionally with the holding period return interval. Collectively, our results explain the previously reported differential earnings response coefficient with respect to size. Moreover, by including the factors noted above, the empirical specification of the earnings/returns relation is significantly improved.

Inventory accounting method, Uncertainty, Inventory accounting method changes, FIFO

Gerald J. Lobo, Amal A. W. Mahmoud, Relationship between Differential Amounts of Prior Information and Security Return Variability, Journal of Accounting Research, Vol. 27, No. 1 (Spring, 1989), pp. 116-134

Performance evaluation, Linear aggregation, Compensation contracts

Partnerships, Tax incentives, Investment decisions, Transaction costs

Auditing, Materiality, Changes in accounting principle, Big Eight

Heuristic decision making, Product-Costing systems, Production decisions, Accounting systems

Post-Earnings-Announcement drift, Risk premium, Delayed market reaction, Incomplete risk adjustment

Auditing, Sampling, Substantive test, Bayesian model

Accounting research, Disciplinary structure, Integration, Fragmentation