The impact of financial reporting and disclosure on stock prices

DISCUSSION ASSIGNMENT INSTRUCTIONS

Provide a 550 plus word summary (formatted according to APA guidelines) of the new research in this area from a minimum of five new peer reviewed journal articles written no later than 2016 and identify questions that need exploring in future research.

Your discussion should be organized in a three-paragraph format:

Introductory Paragraph: gives an overview and definition of the topic you chose. At the end of the paragraph it gives an idea of how your forum is organized.

Current Trends Paragraph: In this paragraph, you will discuss the themes that you found in the research from the 5 articles related to your topic. This paragraph should be a synthesis of the research and not just a listing of annotated summaries.

Future Research Paragraph: In this paragraph, you will discuss areas of future research by referencing the 5 articles that you identified. The future research areas should be based on the findings of the authors of those articles rather than general ideas you may have.

*A reference section should then be included at the end of your discussion.

ANSWER

The Impact of Financial Reporting and Disclosure on Stock Prices

Introduction

Financial reporting and disclosure entail releasing financial data and information to different stakeholders regarding their position and performance. Stock prices tend to move based on market expectations about financial reporting and disclosure. Over the last two decades, financial reporting and disclosure have greatly impacted decision making in investments. This paper will focus on different articles linked to the influence of financial reporting and disclosure on stock prices.

In the last two decades, literature has added to the comprehension to whether financial reporting impacts stock prices and investment decisions. Roychowdhury, Shorff, & Verdi (2019) stated that financial reporting and disclosure greatly impact investment decisions. Ideally, stock prices tend to soar when there is transparency and accountability in disclosure and reporting.

Lit et al., (2017) focused on the connection between disclosure timing, annual reporting and the stock price crash threat. The study relied on a trial of Chinese registered companies for period of 2001 to 2017. The findings indicated that when companies switch their annual report release timing from extreme to low market consideration periods are linked with more stock price crash threat. Therefore, the research offered proof that there is a relationship between report release and stock price crash threat.

Dang, Tran and Nguyen (2018) explored the influence of financial reporting on stock prices listed in the Vietnam Stock Exchange. The study relied on data from 273 large listed companies from the period of 2006 to 2016. Through multiple regressions, the link amid the elements such as rates per share, book value, and the cash flow from operations, stock process, and firm sizes was examined. The findings indicated that the four determinants had a positive relationship with the stock prices. The stock price is impacted by different determinants, with financial information on provided financial statements being one of the major determinants.

Houcine (2017) examined the influence of financial reporting value on company investment efficacy. The study relied on 25 Tunisian listed firms for the period 1997-2013. The findings confirm that some elements of the financial information, smoothness, and reliability tend to boost investment efficiency. Kim, Yeung and Zhou (2019) focused on disclosure effect on stock price crash threat and core control weakness. The results of the analysis indicate that financial disclosure has illustrated the probability of stock price collapse.

Future research should focus on whether reporting and disclosure facilitate the allocation of capital to suitable investments. The effect of financial reporting is more evident in companies where insiders encounter more personal expenses for revealing bad news and companies that have weaker external and internal control mechanisms that influence the company’s trend to conceal bad reporting (Li et al., 2017). According to Dang, Tran and Nguyen (2018), financial data is a surrogate economic structure that represents an entity’s trade deals, events, and transactions.

According to Roychowdhury, Shorff, & Verdi (2019), an emergent body of data has suggested that different facets of a company’s disclosure decisions and data setting have influenced investment decisions. According to Yeung and Zhou (2019), the disclosure effect is a prospector strategy leading to a stock’s high risk. Houcine (2017) offered a structure for examining why company disclosure impacts venture decisions. Future research will explain why reporting and disclosure influence venture decisions in the existence of indecision regarding investment prospects.

References

Dang, N. H., Tran, M. D., & Nguyen, T. L. A. (2018). Investigation of the impact of financial information on stock prices: The case of Vietnam. Academy of Accounting and Financial Studies Journal, 22(2), 1-12.

Houcine, A. (2017). The effect of financial reporting quality on corporate investment efficiency: Evidence from the Tunisian stock market. Research in International Business and Finance, 42, 321-337.

Kim, J. B., Yeung, I., & Zhou, J. (2019). Stock price crash risk and internal control weakness: presence vs. disclosure effect. Accounting & Finance, 59(2), 1197-1233.

Li, T., Xiang, C., Liu, Z., & Cai, W. (2020). Annual report disclosure timing and stock price crash risk. Pacific-Basin Finance Journal, 62, 101392.

Roychowdhury, S., Shroff, N., & Verdi, R. S. (2019). The effects of financial reporting and disclosure on corporate investment: A review. Journal of Accounting and Economics, 68(2-3), 101246.