Lec 3 - Corporate Disclosure Policy and Share Price Anticipation of Earnings / Gelb and Zarowin

Question 1

What type of firm finds prices leading earnings more important?

Answer 1

Firms with an informative disclosure policy

Question 2

What was G and Z’s prediction?

Answer 2

The association between current stock price changes (returns) and future earnings is higher for high disclosure firms
Thereore higher disclosure firms enable the market to anticipate a larger proportion of future earnings changes in period t
The higher correlation shows up in future ERCs

Question 3

What dataset do G and Z rely on?

Answer 3

Federation of Financial Analysts (FAF)
- Total score calculated as weighted average of the 3 individual category scores and main tests are based on total score

Question 4

Empirical journal articles report either standard error of the estimate of the t-test or the p-value, which do G and Z use?

Answer 4

P-value

Question 5

What does a p-value smaller than 0.01 mean for the coefficient?

Answer 5

The coefficient is highly significant

Question 6

What does a p-value between 0.01 and 0.05 mean for the coefficient?

Answer 6

The coefficient is significant

Question 7

What does a p-value between 0.05 and 0.1 mean for the coefficient?

Answer 7

The coefficient is marginally significant

Question 8

What does a p-value greater than 0.1 mean for the coefficient?

Answer 8

The coefficient is not significant and there is no co-movement between the dependent and independent variable