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Financial Reporting Quality and Investors' Divergence of Opinion†

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  • Diogo Silva
  • António Cerqueira

Abstract

The main purpose of this study is to analyze the association of financial reporting quality and investors' divergence of opinion. We focus on UK firms listed on the London Stock Exchange. Divergence of opinion is measured by two proxies based on unexpected trading volume and by dispersion in analysts' forecasts made one and two years ahead. Previous literature shows that the amount of firms' disclosure is negatively associated with the dispersion in analysts' forecasts. The results obtained in our study show that the quality of the disclosure is negatively associated with divergence of opinion, whether it is proxied by measures of unexpected trading volume or dispersion in analysts' forecasts. Financial reporting quality affects divergence of opinion not only in the months that immediately follow the disclosure of the reports but in the whole year that follows. QUALITÉ DE L'INFORMATION FINANCIÈRE ET DIVERGENCE D'OPINIONS CHEZ LES INVESTISSEURS Le principal objectif de la présente étude est d'analyser le lien entre la qualité de l'information financière divulguée par les sociétés et la divergence d'opinions chez les investisseurs. Nous examinons des sociétés du Royaume‐Uni inscrites à la Bourse de Londres. La divergence d'opinions est mesurée à l'aide de deux indicateurs fondés sur des volumes de transactions inattendus et par la dispersion des prévisions des analystes faites un ou deux ans à l'avance. La documentation existante montre que la quantité d'information divulguée par les sociétés est négativement associée à la dispersion des prévisions des analystes. Les résultats obtenus dans le cadre de notre étude indiquent que la qualité de l'information est négativement associée à la divergence d'opinions, que celle‐ci soit mesurée à l'aide des indicateurs axés sur les volumes de transactions inattendus ou par la dispersion des prévisions des analystes. La qualité de l'information financière influence la divergence d'opinions non seulement dans les mois suivant sa divulgation, mais également pendant toute l'année qui suit.

Suggested Citation

  • Diogo Silva & António Cerqueira, 2021. "Financial Reporting Quality and Investors' Divergence of Opinion†," Accounting Perspectives, John Wiley & Sons, vol. 20(1), pages 79-107, March.
    • Handle: RePEc:wly:accper:v:20:y:2021:i:1:p:79-107
    DOI: 10.1111/1911-3838.12250
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