We study the relative usefulness of earnings announcements for valuation from the perspective of information externalities: the use of industry peer information for valuation, particularly for IPO pricing. Externalities of accounting information are one of the primary justifications for disclosure regulations. Assessment of the usefulness of earnings announcements is therefore incomplete without understanding how such information is used for peer equity valuation.
It is not obvious that earnings announcements or other information should matter more for peer share valuation. Prior research suggests that accounting information is by nature low frequency, not discretionary, and primarily backward-looking. Other information, in contrast, is … Read more