We formalize the effects of an earnings disclosure on security prices under an assumption of limited liability. We derive various non-linear relations between equity prices and earnings under a variety of capital structure assumptions and, if possible, tie the relations attained to results from...

The literature in economics and finance document that asset bubbles can emerge and remain sustained for a variety of reasons. In this paper, we develop an analytical model to characterize two types of rational bubbles linked to accounting disclosures, drift bubbles and sensitivity bubbles. We...