Melbourne Accounting Research Seminar - Irina Luneva

Irina Luneva from the University of Pennsylvania will present a MARS seminar.

Topic: What Do the Markets Know?

Abstract: I measure how much information market participants have about (1) firm fundamentals and (2) managers’ misreporting incentives, and the effects of the market’s information on earnings quality and price efficiency. The market knows 81.9% of fundamental and 57.3% of misreporting incentives information contained in current earnings reports before managers issue their current earnings reports. A 1% increase in the market’s fundamental information will increase earnings quality by 1.29% and price efficiency by 1.70%. A 1% increase in the market’s misreporting incentives information will decrease earnings quality by 0.38% and increase price efficiency by 0.17%. Reported earnings differ from true earnings by 91.7% of the standard deviation of true earnings. An average firm is mispriced by $0.35 billion due to information asymmetry.

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