5 The Information Content of Losses

Shareholder Liquidation Option and Earnings Reversals

Samantha Sin, Edward Watts

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

Using Australian data this paper investigates the information content of losses. We are motivated by the possibility that losses and profits have different associations with share returns because losses are not expected to be permanent. Consistent with the evidence in Hayn (1995), our findings show that share returns do have a lower association with losses. In particular, we extend Hayn (1995) and focus on losses made by financially healthy firms where we provide an explanation for the low ERC for these losses. We are able to find supporting evidence that the low ERC is due to shareholders’ expectations of earnings reversals, thus providing further insight into the relationship between returns and losses.

Original languageEnglish
Pages (from-to)327-338
Number of pages12
JournalAustralian Journal of Management
Volume25
Issue number3
DOIs
Publication statusPublished - 2000

Keywords

  • EARNINGS RESPONSE COEFFICIENT (ERC)
  • EARNINGS REVERSALS
  • FINANCIAL HEALTH
  • LOSSES
  • SHAREHOLDER LIQUIDATION OPTION

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