The Information Content of SEC Filings and Investor Sophistication: A Variance Decomposition Analysis

Publication Type

Journal Article

Publication Date

2006

Abstract

Using the Vuolteenaho (2002) variance decomposition methodology, this study assesses the relative value relevance of cash flow, accrual, and expected return news on SEC and preliminary earnings filing dates, as measured by their contribution to the volatility of unexpected returns. Cashflow news is found to be more valuerelevant than accrual news. Although expected return (risk) news is the least valuerelevant, it is significantly correlated with changes in betas and returns at the preliminary and SEC filing dates, indicating association with changes in firm risk and discount rates. This study also documents that these informational components contain less (more) value-relevant information at the SEC filing date for firms with a higherproportion of long-term (short-term) sophisticated investors after controlling for other dimensions of the information environment.

Discipline

Accounting | Corporate Finance | Portfolio and Security Analysis

Research Areas

Financial Performance Analysis

Publication

Accounting Review

Volume

81

Issue

5

First Page

1017

Last Page

1043

ISSN

0001-4826

Identifier

10.2308/accr.2006.81.5.1017

Publisher

American Accounting Association

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