TY - JOUR
T1 - Disaggregation quality, stock returns, and institutional demand
AU - Jiang, George
AU - Kenchington, David
AU - McLemore, Ping
AU - Yüksel, H. Zafer
N1 - Publisher Copyright:
© 2024
PY - 2024/4
Y1 - 2024/4
N2 - We find that financial statement disaggregation quality (DQ), a measure of the fineness of financial statements, is a strong predictor of future stock returns. Institutional investors prefer high-DQ stocks, and their trade gradually incorporates reporting quality into stock prices over a year following disclosures. The relationship between DQ and future stock returns and institutional investors’ preference are stronger for small firms, during higher market-wide uncertainty periods, and robust to replacing DQ with change in DQ. Our findings provide evidence that capital markets are not perfectly efficient, and the discovery of stock prices is a gradual process facilitated by institutional demand.
AB - We find that financial statement disaggregation quality (DQ), a measure of the fineness of financial statements, is a strong predictor of future stock returns. Institutional investors prefer high-DQ stocks, and their trade gradually incorporates reporting quality into stock prices over a year following disclosures. The relationship between DQ and future stock returns and institutional investors’ preference are stronger for small firms, during higher market-wide uncertainty periods, and robust to replacing DQ with change in DQ. Our findings provide evidence that capital markets are not perfectly efficient, and the discovery of stock prices is a gradual process facilitated by institutional demand.
KW - Cross-sectional stock returns
KW - Disaggregation quality (DQ)
KW - Institutional demand
KW - Price discovery
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U2 - 10.1016/j.frl.2024.105202
DO - 10.1016/j.frl.2024.105202
M3 - Article
AN - SCOPUS:85188929424
SN - 1544-6123
VL - 62
JO - Finance Research Letters
JF - Finance Research Letters
M1 - 105202
ER -