Investor protection and price informativeness about future earnings: international evidence |
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| Authors: | In-Mu Haw Bingbing Hu Jay Junghun Lee Woody Wu |
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| Institution: | (1) Department of Accounting, Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA;(2) Department of Accountancy and Law, Hong Kong Baptist University, 34 Renfrew Road, Kowloon Tong, Hong Kong SAR;(3) School of Accountancy, Chinese University of Hong Kong, 12 Chak Cheung Street, Shatin, Hong Kong SAR |
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| Abstract: | This study draws on the investor protection literature to identify structural factors in a country’s information environment
that are likely to explain cross-country differences in the extent to which future earnings information is capitalized in
current stock returns. Using a sample of 55,900 firm-years from 32 countries, we find that greater financial disclosure, higher
quality earnings, and greater information dissemination through news media are associated with stock prices that are more informative about future earnings, whereas strong enforcement of insider trading laws is associated with stock prices that
are less informative about future earnings. We also find that, on average, price informativeness about future earnings is greater
in countries with strong investor protection. Our results illuminate the importance of structural factors constituting a country’s
information environment in explaining cross-country variation in price informativeness about future earnings. |
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