[Numerous researchers have conducted empirical analyses of market reactions to information announcements using trading volume (e.g., Kiger 1972; Morse 1980, 1981; Bamber 1986, 1987; Ziebart 1987) since Beaver (1968) investigated both price and volume reactions to earnings announcements. Beaver contended that abnormal trading volume reflects the degree to which the individual investors in the market revise their expectations as a result of the announcement whereas abnormal returns reflect the aggregate revision in expectations. In Beaver's framework, volume reactions reflect a lack of consensus among the market participants and capture changes in portfolio positions that may not be manifested in price changes. However, a number of other factors such as cash flow coordination, changes in risk preferences, changes in portfolio risk, or taxation may be driving trading activity. Unfortunately, the appropriate economic interpretation to place on an observed trading volume reaction to an information announcement has not been determined. A number of analytical studies have attempted to explain trading volume and belief structures, and in so doing provide a framework for interpreting trading reactions (e.g., Verrecchia 1981; Hakansson et al. 1982, 1984; and others). The results of these studies are mixed, and depending on the formulation of the analysis, a link between consensus of beliefs and trading volume is either demonstrated or dismissed. Given these mixed results, an empirical assessment of the extent to which trading volume reflects changes in consensus is warranted. For a sample of 611 earnings announcements of 90 NYSE-listed firms, this study empirically investigates the association between changes in the level of consensus of beliefs in the market, proxied by the dispersion in analysts' forecasts of annual earnings per share, and changes in the abnormal weekly trading activity surrounding corporate earnings announcements. In addition, changes in abnormal trading volume are also hypothesized to be a positive function of the change in the aggregate belief, proxied by the absolute value of the change in the mean of the analysts' forecasts. An inverse relation between the level of predisclosure information, proxied by firm size, is also expected. The results of this study support the hypothesis that the degree of change in abnormal trading activity is positively associated with both the change in the level of consensus and the absolute value of the percentage revision in the analysts' mean forecast. The evidence does not support the hypothesized link between the change in abnormal trading activity and the level of predisclosure information. These results suggest that an observed trading volume reaction reflects both the revision of beliefs in aggregate, reflecting the "surprise" in the earnings announcement, and the consensus of the individuals' revisions. Unfortunately, the low explanatory power of the variables included in this study suggests that an observed trading volume reaction may reflect the effects of a number of other factors not included in this study.]

Research Methodology, Abnormal returns, Beta reliability, Information content

[Previous market-based research has generally failed to detect significantly negative market price reaction to the issuance of SFAS No. 8. Using standardized abnormal returns, this study re-examines the issue. Reaction to events culminating in the issuance of SFAS No. 52 is also studied. Finally, since the accounting method used prior to SFAS No. 8 may be related to the costs imposed by SFAS No. 8, the method is determined and its effect on the observed market reactions is investigated. Our results indicate an overall negative reaction to SFAS No. 8, with a positive reaction to SFAS No. 52. In addition, the pre-SFAS No. 8 method of accounting for foreign currency translation is found to be related to the market reactions to SFAS No. 8 and SFAS No. 52 in mixed and unpredictable ways.]

Studies the association between changes in consensus of beliefs in the market and changes in the abnormal weekly trading activity surrounding corporate earnings announcement. Effects of changes in abnormal trading volume on the changes in aggregate beliefs; Informational factors affecting trade volume; economic interpretation of an observed trading reaction to an information event.

The role of accounting information in investment decision making and capital markets has been investigated by exploring fundamental connections between accounting numbers and market‐based phenomena of interest. Studies of bond rating predictions have described how bond raters make their judgments as a function of accounting and other data. This study expands our knowledge of these fundamental connections by investigating whether bond ratings have a direct impact on bond yields and how accounting information impacts the bond yields—directly, or indirectly through the bond ratings. A simultaneous equation system is constructed using firm‐specific financial information, bond ratings by two major rating agencies, and initial offering yields. The sample used in this study consists of 189 new issue industrial bonds rated by both Standard & Poor's and Moody's that were issued from 1981 through 1985. Tests of alternative structural model configurations provide evidence regarding the interrelations between bond ratings, financial information, and bond yields. The improvements in the statistical methodology lead to a better understanding and assessment of the relative roles of bond ratings and financial information in setting bond prices. The use of simultaneous equation modeling allows the interrelations among yields, ratings, and financial information to be assessed and allows the direct and indirect effect of financial information on yields to be estimated. This results in the ability to conclude that financial information affects bond ratings, that bond ratings directly affect bond yields, that financial information also directly affects bond yields, and that financial information indirectly affects bond yields through its effect on ratings. The role of accounting information in setting bond market prices is clarified using this approach. Résumé. On a étudié le rôle de l'information comptable dans la prise de décisions d'investissement et sur les marchés financiers en explorant les liens fondamentaux entre les données comptables et les phénomènes d'intérêt fondés sur le marché. Les études portant sur les prédictions relatives à la notation des obligations ont décrit de quelle façon les services d'information financière jugeaient de la valeur des obligations à partir de données, comptables et autres. Les auteurs de la présente étude élargissent la connaissance de ces liens fondamentaux en analysant la possibilité que la notation des obligations ait une incidence directe sur leur rendement et la façon dont l'information comptable agit sur le rendement des obligations, que ce soit directement, ou indirectement par l'intermédiaire de leur notation. Les auteurs constuisent un système d'équations simultanées à l'aide de l'information financière propre à l'entreprise, des cotes accordées aux obligations par deux services majeurs d'informations financières et du rendement des émissions initiales. l'échantillon qui a servi à l'étude compte 189 nouvelles émissions d'obligations dans le secteur industriel, cotées à la fois par Standard & Poor's et Moody's, qui ont été émises entre 1981 et 1985. Les tests appliqués aux configurations de rechange du modèle structurel établissent clairement les relations entre la notation des obligations, l'information financière et le rendement des obligations. Les progrès de la méthodologie statistique ont mené à une meilleure compréhension et une meilleure évaluation des rôles relatifs de la notation des obligations et de l'information financière dans l'établissement du prix des obligations. La modélisation d'équations simultanées permet, d'une part, l'évaluation des relations entre rendement, notation et information financière et, d'autre part, l'estimation des conséquences directes et indirectes de l'information financière sur le rendement qui doit être estimé, ce qui amène à conclure que l'information financière a une incidence sur la notation des obligations, que la notation des obligations exerce une influence directe sur le rendement des obligations, que l'information financière touche également de manière directe le rendement des obligations et qu'elle a une incidence indirecte sur le rendement des obligations, par le truchement de son incidence sur la notation. Le rôle de l'information comptable dans l'établissement de la valeur marchande des obligations est éclairci grâce à cette méthode.

Previous market-based research has generally failed to detect significantly negative market price reaction to the issuance of SFAS No. 8. Using standardized abnormal returns, this study re-examines the issue. Reaction to events culminating in the issuance of SFAS No. 52 is also studied. Finally, since the accounting method used prior to SFAS No. 8 may be related to the costs imposed by SFAS No. 8, the method is determined and its effect on the observed market reactions is investigated. Our results indicate an overall negative reaction to SFAS No. 8, with a positive reaction to SFAS No. 52. In addition, the pre-SFAS No. 8 method of accounting for foreign currency translation is found to be related to the market reactions to SFAS No. 8 and SFAS No. 52 in mixed and unpredictable ways.

Using 18,253 firm-year observations from 1998 through 2003, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings and test whether management earnings per share forecasts and their characteristics influence the future earnings response coefficient (FERC). We find that FERCs are greater for forecasting firms and when forecasts are more frequent or precise. We suggest that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we find that quarterly and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts; thus, even short-term, quarterly forecasts allow investors to form better expectations about future earnings. This suggests a benefit of quarterly earnings forecasts possibly overlooked in recommendations from the United States Chamber of Commerce, CFA Institute, Business Roundtable Institute for Corporate Ethics, and The Conference Board to eliminate quarterly earnings guidance.