Accruals, Disclosure and the Pricing of Future Earnings in the European Market

Authors

  • Christina Dargenidou,

    1. The authors are respectively from, the Center for Finance and Investment, University of Exeter; the University of Sydney, Australia; and City University, London. The paper has benefited from comments received at the 2006 European Accounting Association meeting, the 2007 EIASM Workshop in Accounting and Regulation, Siena, Italy, the 2008 Workshop de Investigación Empírica en Contabilidad Financiera, Madrid, Spain and especially the discussant Marco Trombetta, the 2009 American Accounting Association meeting, the Annual Meeting of the University of Wales in Gregynog and the Accounting and Finance Seminar series in the University of Exeter. The authors are grateful for the data on disclosure provided by S&P. They would like to thank the editors and the anonymous referee for suggestions that have undoubtedly helped to improve the paper.
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  • Stuart McLeay,

    1. The authors are respectively from, the Center for Finance and Investment, University of Exeter; the University of Sydney, Australia; and City University, London. The paper has benefited from comments received at the 2006 European Accounting Association meeting, the 2007 EIASM Workshop in Accounting and Regulation, Siena, Italy, the 2008 Workshop de Investigación Empírica en Contabilidad Financiera, Madrid, Spain and especially the discussant Marco Trombetta, the 2009 American Accounting Association meeting, the Annual Meeting of the University of Wales in Gregynog and the Accounting and Finance Seminar series in the University of Exeter. The authors are grateful for the data on disclosure provided by S&P. They would like to thank the editors and the anonymous referee for suggestions that have undoubtedly helped to improve the paper.
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  • Ivana Raonic

    Corresponding author
    1. The authors are respectively from, the Center for Finance and Investment, University of Exeter; the University of Sydney, Australia; and City University, London. The paper has benefited from comments received at the 2006 European Accounting Association meeting, the 2007 EIASM Workshop in Accounting and Regulation, Siena, Italy, the 2008 Workshop de Investigación Empírica en Contabilidad Financiera, Madrid, Spain and especially the discussant Marco Trombetta, the 2009 American Accounting Association meeting, the Annual Meeting of the University of Wales in Gregynog and the Accounting and Finance Seminar series in the University of Exeter. The authors are grateful for the data on disclosure provided by S&P. They would like to thank the editors and the anonymous referee for suggestions that have undoubtedly helped to improve the paper.
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Christina Dargenidou, Center for Finance and Investment, University of Exeter, EX4 4ST, UK.
e-mail: C.Dargenidou@exeter.ac.uk

Abstract

Abstract:  This paper examines the role of disclosure in assisting market participants to form expectations of future earnings from the accrual content of reported earnings. Using the Transparency and Disclosure ratings prepared by Standard and Poor’s, we show how disclosure and accruals jointly affect the earnings expectations that are incorporated in current stock returns, depending on the magnitude and sign of the changes in net current and net non-current operating assets.

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