Review of Accounting Studies

, Volume 17, Issue 2, pp 389–419 | Cite as

Investor protection and price informativeness about future earnings: international evidence

  • In-Mu HawEmail author
  • Bingbing Hu
  • Jay Junghun Lee
  • Woody Wu


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.


Price informativeness Future earnings response coefficient (FERC) Investor protection institutions Structural factors Cross-country study 

JEL Classification

F30 G15 G18 K33 M41 



We thank Richard Sloan (editor), two anonymous referees, Bin Ke, Larry Lang, Gordon Richardson, T.J. Wong, and workshop participants at Chinese University of Hong Kong, Shanghai University of Finance and Economics, and the First International Symposium of Accounting and Finance at Shantou University for constructive comments and suggestions. In-Mu Haw gratefully acknowledges financial support from Texas Christian University. Bingbing Hu and Jay Junghun Lee gratefully acknowledge financial support from Hong Kong Baptist University. Woody Wu gratefully acknowledges financial support from Chinese University of Hong Kong.


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  • In-Mu Haw
    • 1
    Email author
  • Bingbing Hu
    • 2
  • Jay Junghun Lee
    • 2
  • Woody Wu
    • 3
  1. 1.Department of Accounting, Neeley School of BusinessTexas Christian UniversityFort WorthUSA
  2. 2.Department of Accountancy and LawHong Kong Baptist UniversityKowloon TongHong Kong SAR
  3. 3.School of AccountancyChinese University of Hong KongShatinHong Kong SAR

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