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The market pricing of negative special items through time: an unintended consequence of regulation change?

Author

Listed:
  • Thomas J. Lopez

    (University of Alabama)

  • Craig A. Sisneros

    (Oklahoma State University)

  • Trevor Sorensen

    (West Virginia University)

Abstract

Prior research concludes that the implications of negative special items (NSIs) for future earnings are more fully reflected than earnings before NSIs. Our evidence suggests that US regulatory changes resulted in dramatic increases (decreases) in NSI reporting frequency (magnitude). We find that the advantage in pricing NSIs relative to other components of earnings disappears for the average firm post-regulation and for high frequency NSI reporters regardless of time period. Our evidence suggests that regulations governing the financial reporting of NSIs resulted in unintended consequences by impairing the ability of market participants to understand the future earnings implications of these items.

Suggested Citation

  • Thomas J. Lopez & Craig A. Sisneros & Trevor Sorensen, 2020. "The market pricing of negative special items through time: an unintended consequence of regulation change?," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 753-777, February.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:2:d:10.1007_s11156-019-00806-7
    DOI: 10.1007/s11156-019-00806-7
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Special items; Earnings components; Restructuring; Goodwill impairment; Special item reporting frequency; Financial regulation; Unintended consequence;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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