Journal of Financial Economics Vol. 94 No. 1 2009
Opaque financial reports, R2, and crash risk☆
Abstract
We investigate the relation between the transparency of financial statements and the distribution of stock returns. Using earnings management as a measure of opacity, we find that opacity is associated with higher R2s, indicating less revelation of firm-specific information. Moreover, opaque firms are more prone to stock price crashes, consistent with the prediction of the Jin and Myers [2006. R2 around the world: new theory and new tests. Journal of Financial Economics 79, 257–292] model. However, these relations seem to have dissipated since the passage of the Sarbanes-Oxley Act, suggesting that earnings management has decreased or that firms can hide less information in the new regulatory environment.
- DOI
- 10.1016/j.jfineco.2008.10.003
- Volume
- 94
- Issue
- 1
- Pages
- 67-86
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex