Review of Accounting Studies

, Volume 11, Issue 1, pp 5–19 | Cite as

Stock Price Reaction to Evidence of Earnings Management: Implications for Supplementary Financial Disclosure

Original Article

Abstract

We condition security price reactions to quarterly earnings announcements on whether firms disclose supplementary balance sheet and/or cashflow information that can be used to estimate the consequences of earnings management. Disclosure of supplementary information is voluntary, and thus, we consider the possibility that firms that disclose balance sheet and/or cashflow information differ systematically from firms that do not disclose. Results indicate that investors discount evidence of earnings management at the disclosure date when supplementary information is disclosed. Such results indicate more informed earnings interpretations of quarterly earnings when firms provide balance sheet and/or cashflow information concurrently.

Keywords

Earnings management Financial disclosure policy 

JEL Classifications

M41 M43 G14 

Notes

Acknowledgements

We thank Chris Jones, Krishna Kumar, Konduru Sivaramakrishnan, Karen Taranto, Sam Tiras, Kumar Visvanathan, Scott Whisenant, Michael Willenborg, Carol Yu, and workshop participants at the University at Buffalo, the University of Connecticut, the University of Houston, the University of Maryland, and Virginia Tech for comments in prior versions of this manuscript.

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Copyright information

© Springer Science+Business Media, Inc. 2006

Authors and Affiliations

  • William R. Baber
    • 1
  • Shuping Chen
    • 2
  • Sok-Hyon Kang
    • 1
  1. 1.The George Washington University School of BusinessWashington, DCUSA
  2. 2.University of Washington Business SchoolSeattleUSA

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