To warn or not to warn: management disclosures in the face of an earnings surprise

Article Abstract:

Management disclosures before a large earnings surprise were examined. The study sought to find out how executives alert investors to a surprising earnings release and how investors react to these warnings. Data for the study were obtained from a sample of firms ranked on the 1992 COMPUSTAT quarterly tape according to their earnings surprise in the 4th qtr. of FY 1988, 1989 and 1990. Results revealed that less than 10% of the sample firms provided quantitative point or range estimates of earnings or sales, about 50% declined to offer any operating information before the surprising earnings release, while the remaining 40% offered different classes of operating information before the earnings surprise. Companies whose earnings fell short of analysts' forecasts provided considerably more discretionary disclosures than firms whose earnings exceeded forecasts.

Profits, Disclosure statements (Accounting), Corporate profits

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Toward a theory of equitable and efficient accounting policy

Article Abstract:

A public policy which mandates the disclosure of financial information can reduce information asymmetries, thus mitigating the adverse consequences of inequities in capital markets such as high transaction costs, thin markets, and lower liquidity. An equity-oriented concept of disclosure regulation is advanced. The concept of equity advanced here is different from previous concepts of equity in accounting in that the new concept is linked to recent developments in economics in finance, rather than to vague and moralistic concepts. Disclosure regulation is justified on the basis of economically sound principles, and policymakers are given an operational public interest criterion for disclosure choices.

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Cross-sectional capital market research and model specification

Article Abstract:

The advantages of returns and levels methodologies in cross-sectional capital markets research are dependent upon the researcher's assumptions about the properties of the estimation data and the pricing relation. The decision to select a price change or a price level model specification is a function of the nature of the economic properties and the economic model of equilibrium that is assumed.

Equilibrium (Economics)

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