Melbourne Accounting Research Seminar - Charles Kang

Dr Charles Kang from Hong Kong University will present a MARS seminar.

Topic: Divestitures, Classification Uncertainty, and Stock Market Mispricing

Abstract: We examine the effect of financial reporting of divestitures on analysts’ forecasts and stock prices, focusing on the recent accounting rule change that imposes the “strategic approach” for classifying divestitures as discontinued operations. We argue that this new approach introduces classification uncertainty regarding divestitures among security analysts and has consequences on stock prices. We find higher absolute forecast error for firms with large divestitures following the rule change. When classification uncertainty is high, analysts’ forecasts tend to be too optimistic, causing stock price reversals after earnings announcements. These results are more pronounced for firms that are more likely to manage earnings.

This seminar will be conducted remotely via Zoom. Register for this seminar

Click here to register for all MARS seminars