Empirical Studies in Financial Accounting

Abstract The purpose of this study is investigating the role of accounting information uncertainty on investors’ reaction to earnings announcement, as well as investors’ reaction to good earnings news. For doing so, a sample of 162 listed companies in the Tehran Stock Exchange in the period 1384 to 1394 have been selected. Three criteria including information quality, cash flows’ uncertainty (traditional and matched- firm method) were used for calculating the information uncertainty. The results of hypotheses test indicated when there is high information uncertainty (compared to low uncertainty), investors’ reaction to earnings announcement is less. Also, under high uncertainty, investors display less reaction to good news that this response is consistent with the conservatism approach.

Abstract Information uncertainty has been an old topic in finance literature. Information uncertainty means ambiguity about a firm’s fundamental value, which may arise from two conventional sources: 1) characteristics of the business or industry, and 2) the company’s disclosure policy. The first source related to growth options and second source related to information asymmetry. From investors’ perspective the mechanisms and outcomes of every source are quite different. In this research we use from earning forecast dispersion as a proxy for measuring information uncertainty. We use stock turnover and price impact as proxies for information asymmetry. To control firm’s growth options, we use firm age, market-to-book ratio, and capital expenditure over total assets and Tobin’s Q. We use panel data regression model to analyze information. Our results indicate that information uncertainty has a positive relationship with information asymmetry and growth options.