Securities Industry Price Response to Financial Asset Information
The objective of this paper is to determine the extent to which balance sheet information affects the pricing of the common stocks of securities and financial service firms. It is well known that income statement provides important information for the valuation of common stock. However, in the case of securities and financial service companies, the holding of financial, as opposed to operating, assets and thus the balance sheets of securities and financial service firms may well represent the predominant repository of the information affecting the price of common stock. This paper finds that there are significant changes in stock prices of securities and financial service firms surrounding the balance sheet disclosure date and that the market reactions to balance sheet information are stronger when there is unexpected good news than where there is unexpected bad news. In general, prices of securities firm stocks react more to changes in asset values than to changes in earnings. Furthermore, the earnings announcement tends to reinforce the effect of the balance sheet disclosure. The firm posts the largest abnormal stock returns when there is unexpected good news in both income and balance statements.
Journal of Financial Studies
WU, Chunchi and Young, Allan.
Securities Industry Price Response to Financial Asset Information. (1993). Journal of Financial Studies. 1, (1), 103-117. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/861