On the Value Relevance of Asymmetric Financial Reporting Policies



    1. Department of Accounting and Control, Rotterdam School of Management, Erasmus University. The research of this author has been made possible by a fellowship of the Royal Netherlands Academy of Arts and Sciences. This paper has benefited from the helpful comments and suggestions of an anonymous reviewer, Philip Berger (editor), John Hughes, Thore Johnsen, Michael Kirschenheiter, Evelyn Korn, Brian Mittendorf, Jack Stecher, Alfred Wagenhofer; participants of the Amsterdam-Nyenrode Accounting Research Workshop, Chicago-Minnesota Accounting Theory Conference, Workshop of Accounting and Economics V; and seminar participants at Catholic University of Leuven, Tilburg University, Norwegian School of Economics and Business Administration, and Tel Aviv University.
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This paper considers an overlapping generations model where investors trade in a firm's stock. Investment risk is partly determined by the volatility of the stock price at which current investors can sell their shares to the next generation of investors. It is shown that asymmetric reporting of good and bad news is value relevant as it affects the allocation of risk among future generations of shareholders.