Abstract
This study investigates how the value-creation process affects the extent to which stock prices incorporate value-relevant information about future earnings. In contrast to previous studies focusing on the value-reporting process, this paper shows that strong product market power accelerates the incorporation of future earnings into current equity prices due to less uncertainty about future cash flows and that intensive long-term investment deters such incorporation because of greater uncertainty regarding future cash flows. The results suggest that firm fundamentals shaped by product market competition and long-term investment explain the price informativeness about future earnings beyond the impact of management's reporting discretion.
| Original language | English |
|---|---|
| Pages (from-to) | 83-102 |
| Number of pages | 20 |
| Journal | Journal of Contemporary Accounting and Economics |
| Volume | 14 |
| Issue number | 1 |
| DOIs | |
| State | Published - Apr 2018 |
ASJC Scopus Subject Areas
- Accounting
Keywords
- Fundamental uncertainty
- Future earnings response coefficient (FERC)
- Long-term investment
- Price informativeness
- Product market power
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