The relationship between the frequency of news release and the information asymmetry: The role of uninformed trading

This paper shows that the degree of information asymmetry is lower for firms with more frequent news releases. The relation holds for various measures of information asymmetry such as the probability of information-based trading (. PIN), permanent price impact, and adverse selection component of bid-ask spread, even after adjusting for endogeneity between news release and information asymmetry. By decomposing the PIN into intensities of uninformed and informed trades, similarly to Brown and Hillegeist (2007), we find that intensity of uninformed trading increases much more than that of informed trading for firms with more frequent news releases. As a result, information asymmetry, as is measured by PIN, decreases for such firms due to the large increase in the intensity of uninformed trading. Our findings highlight not only the importance of news releases in leveling the playing field of investors but also the role of uninformed investors in reducing trading cost due to information asymmetry. © 2013 Elsevier B.V..Srinivasan Sankaraguruswamy, Jianfeng Shen, Takeshi Yamad

Good news, bad news and earnings return relation

A large body of literature has been devoted to studying the information content of accounting information, especially earnings numbers issued by a firm, reviewed by Lev, 1989. This paper studies the relation between the magnitude and sign of earnings surprise, and stock returns. The news event studied here is the quarterly earnings announcement. We appeal to Titman and Trueman (1986) and Penno (1995) to provide background for our study. Titman and Trueman (1986) show that precision of bad news is less than precision of good news and the stock price reaction is symmetric in news. In a recent paper Penno (1995) gives a counter example for Titman and Trueman (1986) and shows that the precision of bad news is greater than that of good news and this leads to a stronger stock price reaction to bad news than to good news. We find that the stock price reaction to bad news is stronger than to good news. This differential reaction persists after controlling for: (a) negative earnings (Hayn, 1995), (b) uncertainty about the quality of the information possessed by the firm (Shin, 1994), (c) amount of pre announcement information (McNichols, 1988; Skinner, 1994), (d) differential prior precision of the earnings signal (Kim and Verrecchia, 1991), and (e) firm specific variables such as persistence (Freeman and Tse, 1992) and firm size (Ro, 1989)

Evidence on the Joint Determination of Audit and Non-Audit Fees

In this study we investigate whether the characteristics of clients, auditors, and the auditor-client relationship simultaneously determine audit and non-audit fees. As done in prior studies, we maintain that fees proxy for the level of service provided and follow the physical flow of knowledge. Estimating single-equation models of audit and non-audit fee models, we confirm prior findings of an association between audit and non-audit fees. Studies conclude that such evidence is consistent with knowledge spillovers between the two services. However, we document empirically that audit and non-audit fees are simultaneously determined. Because the data indicate audit and non-audit fees are jointly determined, we then investigate whether previously documented associations between audit and non-audit fees are the result of biased estimation induced by using endogenous variables in single-equation models. In contrast to results from single-equation estimations, we find no association between audit and non-audit fees using a simultaneous specification of the fee system, suggesting that single-equation estimations suffer from simultaneous-equations bias. In sum, the findings are not consistent with the existence of economies of scope from the joint performance of audit and non-audit services after controlling for the joint behavior of audit and non-audit fees. Given the ongoing debate over the level of allowed non-audit services by auditors, the argument for the joint provision of audit and non-audit services is less justified than if joint-supply benefits had been documented. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2003.

The value of combining the information content of analyst recommendations and target prices

In assessing the usefulness of the analysts' stock picking advice, the extant literature has largely focused on the profitability of either their stock recommendations or target prices in isolation. In this paper, we examine the profitability of investment strategies that exploit the information analysts convey through revisions in both their stock recommendations and target prices. We find that these strategies significantly outperform the comparable strategies that make use of only one analyst output.Stock recommendations Target prices Security analysts Investment strategies

Who follows the prophets? : analysts' stock recommendations and the trading response of large and small investors

Research Paper Series (National University of Singapore. Faculty of Business Administration); 2005-0261-4

The value of combining the information content of analyst recommendations and target prices

10.1016/j.finmar.2009.07.002Journal of Financial Markets124754-77