Using daily stock returns: The case of event studies

Corporate disclosure is critical for the functioning of an efficient capital market. Firms provide disclosure through regulated financial reports, including the financial statements, footnotes, management discussion and analysis, and other regulatory filings. In addition, some firms engage in voluntary communication, such as management forecasts, analysts? presentations and conference calls, press releases, internet sites, and other corporate reports. Finally, there are disclosures about firms by information intermediaries, such as financial analysts, industry experts, and the financial press.

Information Asymmetry, Corporate Disclosure and the Capital Markets: A Review of the Empirical Disclosure Literature

http://lib.cufe.edu.cn/upload_files/other/4_20140516025625_19.pdf

Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature $

https://faculty.fuqua.duke.edu/~charvey/Research/Working_Papers/W73_The_economic_implications.pdf

The economic implications of corporate financial reporting

The event study is an important research tool in economics and finance. The goal of an event study is to measure the effects of an economic event on the value of firms. Event study methods exploit the fact that, given rationality in the marketplace, the effects of an event will be reflected immediately in security prices. Thus the impact can be measured by examining security prices surrounding the event. In this paper event study methods are described including some of the potential complications. An example is included to illustrate the approach.

http://www.business.unr.edu/faculty/liuc/files/BADM742/MacKinlay_1997.pdf

Event Studies in Economics and Finance

https://isiarticles.com/bundles/Article/pre/pdf/14778.pdf

The market pricing of accruals quality

We examine the relation between the cost of equity capital and seven attributes of earnings: accrual quality, persistence, predictability, smoothness, value relevance, timeliness, and conservatism. We characterize the first four attributes as accounting‐based because they are typically measured using accounting information only. We characterize the last three attributes as market‐based because proxies for these constructs are typically based on relations between market data and accounting data. Based on theoretical models predicting a positive association between information quality and cost of equity, we test for and find that firms with the least favorable values of each attribute, considered individually, generally experience larger costs of equity than firms with the most favorable values. The largest cost of equity effects are observed for the accounting‐based attributes, in particular, accrual quality. These findings are robust to controls for innate determinants of the earnings attributes (firm siz...

Costs of Equity and Earnings Attributes

The authors explore the concern that financial statements no longer have the same relevance to investors that they had in the past. They test for “value relevance” by measuring the total return that could have been earned from prior knowledge of financial statement information and by examining the explanatory power of accounting information on market values and annual market-adjusted returns. Both analyses are applied to a broad sample of exchange-listed and Nasdaq firms for the 1952–94 period. The authors find mixed evidence on value relevance of financial statement reporting during the test period.

Have financial statements lost their relevance

Shareholder Litigation and Corporate Disclosures

In this paper we examine the economic impact of a group of mergerrelated regulatory changes in the securities laws, the tax code, disclosure rules, and accounting principles which occurred during 1966-70. The specific regulations we consider are the Williams Amendments to the securities laws, the 1969 Tax Reform Act, Accounting Principles Board (APB) Opinions 16 and 17, and the SEC's segment disclosure rules. The impact of these changes is estimated by examining rates of return to shareholders of firms that were engaged in acquisitions programs during the period of regulatory change. A widely used procedure for estimating the economic impact of events such as regulatory changes is the aggregation of security return residuals from a "fair return" model such as the market model or CAPM.1 We take an alternative approach which conditions the return-generating process on the presence of regulatory change and employs generalized least squares (GLS) estimation. This approach provides a framework for testing a wide range of hypotheses and offers several advantages in making efficient use of available data. The concern with efficiency arises from three characteristics typically associated with policy event studies:

Katherine Schipper

Papers

The market pricing of accruals quality

Costs of Equity and Earnings Attributes

Have financial statements lost their relevance

Shareholder Litigation and Corporate Disclosures

The Impact of Merger-Related Regulations on the Shareholders of Acquiring Firms