How efficient is the market for Australian firms’ earnings information?

Taylor, S; Tong, A

How efficient is the market for Australian firms’ earnings information?

Taylor, S

Tong, A

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Publisher:: WILEY
Publication Type:: Journal Article
Citation:: Accounting and Finance, 2020, 60, (4), pp. 4225-4255
Issue Date:: 2020

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Field	Value	Language
dc.contributor.author	Taylor, S https://orcid.org/0000-0001-8870-4966
dc.contributor.author	Tong, A
dc.date.accessioned	2021-02-15T04:13:56Z
dc.date.available	2021-02-15T04:13:56Z
dc.date.issued	2020
dc.identifier.citation	Accounting and Finance, 2020, 60, (4), pp. 4225-4255
dc.identifier.issn	0810-5391
dc.identifier.issn	1467-629X
dc.identifier.uri	http://hdl.handle.net/10453/146105
dc.description.abstract	© 2019 Accounting and Finance Association of Australia and New Zealand We construct a measure of the speed with which forecasts issued by sell-side analysts accurately forecast future annual earnings. Following Marshall, we label this measure earnings information flow timeliness (EIFT). This measure avoids the aggregation problem inherent in price-based measures of information efficiency. We document large variation in EIFT across firm-years, and show that EIFT is positively associated with the extent of analyst following, consistent with increased analyst coverage improving the speed with which earnings-related information is recognised. We also find that EIFT is higher for firm-years classified as ‘bad news’ (i.e., where analysts’ forecasts at the start of the financial period exceed the reported outcome). However, when we separately consider instances where analysts appear to forecast non-GAAP (or ‘street’) earnings rather than GAAP earnings, we find that the greater timeliness of bad news is concentrated among observations where analysts forecast non-GAAP earnings, where unusual items are typically excluded. We conclude that the market for accounting information is more efficient for negative operating outcomes than for negative outcomes reflecting unusual items.
dc.language	English
dc.publisher	WILEY
dc.relation.ispartof	Accounting and Finance
dc.relation.isbasedon	10.1111/acfi.12524
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1402 Applied Economics, 1501 Accounting, Auditing and Accountability, 1502 Banking, Finance and Investment
dc.subject.classification	Accounting
dc.title	How efficient is the market for Australian firms’ earnings information?
dc.type	Journal Article
utslib.citation.volume	60
utslib.for	1402 Applied Economics
utslib.for	1501 Accounting, Auditing and Accountability
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Accounting Discipline
pubs.organisational-group	/University of Technology Sydney
utslib.copyright.status	closed_access	*
pubs.consider-herdc	true
dc.date.updated	2021-02-15T04:13:25Z
pubs.issue	4
pubs.publication-status	Published
pubs.volume	60
utslib.citation.issue	4

Abstract:

© 2019 Accounting and Finance Association of Australia and New Zealand We construct a measure of the speed with which forecasts issued by sell-side analysts accurately forecast future annual earnings. Following Marshall, we label this measure earnings information flow timeliness (EIFT). This measure avoids the aggregation problem inherent in price-based measures of information efficiency. We document large variation in EIFT across firm-years, and show that EIFT is positively associated with the extent of analyst following, consistent with increased analyst coverage improving the speed with which earnings-related information is recognised. We also find that EIFT is higher for firm-years classified as ‘bad news’ (i.e., where analysts’ forecasts at the start of the financial period exceed the reported outcome). However, when we separately consider instances where analysts appear to forecast non-GAAP (or ‘street’) earnings rather than GAAP earnings, we find that the greater timeliness of bad news is concentrated among observations where analysts forecast non-GAAP earnings, where unusual items are typically excluded. We conclude that the market for accounting information is more efficient for negative operating outcomes than for negative outcomes reflecting unusual items.

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http://hdl.handle.net/10453/146105