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Keywords:

  • corporate disclosure;
  • accruals;
  • earnings expectations;
  • share price anticipation of future earnings;
  • Standard and Poor’s transparency and disclosure

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.