The relationship between accounting information and capital markets has been the subject of numerous studies, especially in the US. The purpose of this article is to examine the corresponding evidence in Europe. This review classifies the European literature into three groups: studies of the...

This paper examines the effect of income smoothing on information uncertainty, stock returns, and cost of equity. I show that income smoothing through both total accruals and discretionary accruals tends to reduce firms' information uncertainty, as measured by stock return volatility, analyst...

Controlling for firm-specific characteristics determining financial reporting quality, this paper finds evidence of a negative association between firms' total risk and financial reporting quality. While the results imply that firms providing financial information of higher quality do not...

Change in 10-K file size robustly and negatively predicts future stock returns. The documented return predictability reflects mainly information content of 10-K file size change on future cash flow news. We examine whether this return predictability derives from managers' risk disclosures or...

A premise of standard setters and of much empirical research is that improving the quality of accounting standards and their implementation increases information in capital markets. This paper challenges this premise and shows that there are situations in which “better”, i.e., more...

The paper provides evidence that the relation between accruals and future returns is not symmetric. We find that firms with low accruals generate insignificant abnormal returns in asset pricing regressions that control for either earnings quality or operating volatility. In contrast, we find...

Previous studies document that market reactions to firm-level earnings news are stronger during good times than in bad times. We find that this result is driven by small firms. In fact, the market reaction to large firms' earnings news is weaker during economic expansions than contractions. We...

The paper examines the relation between the probability of manipulation, accruals, and future returns. We show that firms that have a high likelihood of earnings manipulation (as measured by the Beneish (1999)'s M-Score) experience lower future earnings, but that investors expect these firms to...

The release of the full set of financial statements in Form 10-Q provides investors with the data necessary to estimate the discretionary portion of earnings, thereby allowing them to better assess the integrity of reported quarterly earnings. We thus expect a negative association between...