Voluntary accounting changes and post-earnings announcement drift. Issue 1 (5th May 2015)

• Record Type: Journal Article
• Authors: Chen, Yi-Ching; Wang, Tawei; Seng, Jia-Lang
• Is Part Of: Asian review of accounting. Volume 23:Issue 1(2015)
• Page Start: 2
• Page End: 16
• Publication Date: 2015-05-05
• Subjects: Accounting -- Asia -- Periodicals; Accounting -- Pacific Area -- Periodicals; Accounting -- Periodicals; 657.095
• DOI: 10.1108/ARA-01-2014-0005
• Languages: English
• ISSNs: 1321-7348

Abstract

<abstract> <title> <x content-type="archive" xml:space="preserve">Abstract</x> </title> <sec> <title content-type="abstract-heading">Purpose</title> <p> – The purpose of this paper is to investigate the relation between voluntary accounting changes (VACs) and post-earnings announcement drift. In addition, the authors examine how accounting choice heterogeneity moderates such association. </p> </sec> <sec> <title content-type="abstract-heading">Design/methodology/approach</title> <p> – The authors collect VAC firms in the US in the period from 1994 to 2008 and identify the heterogeneity of accounting choices between VAC and non-VAC firms. To test the hypotheses, the authors consider a 10-Q filing window and a post-filing drift window. The 10-Q filing window begins from one trading day before and ends on one trading day after the quarterly report filing date. The post-filing drift window begins from two trading days after the filing date and ends on 60 trading days with respect to the earnings announcement date. </p> </sec> <sec> <title content-type="abstract-heading">Findings</title> <p> – The results demonstrate that, overall, VAC does not affect the three-day market reactions to 10-Q filings. However, after taking into account the accounting choice heterogeneity, the authors observe that VAC is positively related to the market reactions to surprises and negatively associated with the post-filing period drift. </p> </sec> <sec> <title content-type="abstract-heading">Originality/value</title> <p> – The paper contributes to the literature by showing that VACs affect the market's responses to 10-Q filings only when such change results in different accounting practices compared to the VAC firm's major competitors. Furthermore, given the change with heterogeneity requires more time to process, VACs are related to post-filing announcement drift.</p> </sec> </abstract>