Synergy between Accounting Disclosures and Forward-Looking Information in Stock Prices
By Anil Arya, Brian Mittendorf, Ram Ramanan
The Accounting Review | March 2017
DOI
doi.org/10.2308/accr-51527
Citation
Arya, Anil., Mittendorf, Brian., Ramanan, Ram. Synergy between Accounting Disclosures and Forward-Looking Information in Stock Prices The Accounting Review doi.org/10.2308/accr-51527.
Copyright
The Accounting Review, 2017
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Abstract
It is well recognized that stock prices provide relevant feedback that can guide future firm decisions. This paper develops a model to examine how accounting disclosures affect the decision-usefulness of such stock market reactions. We demonstrate that information in accounting reports can prove useful because it helps observers better interpret and isolate the decision-relevant information embedded in the ensuing stock price reaction. This leads to natural synergies between accounting reports and stock prices in directing firm strategies—the more forward-looking information that can potentially be gleaned from stock prices, the more the firm will invest in improving precision of accounting disclosures even when such disclosures pertain to unrelated current activities.

Ram Ramanan is an Associate Professor of Accounting at the Indian School of Business (ISB). Before joining ISB, he served as a faculty member at the University of California, Davis and at SUNY, Binghamton.

Professor Ramanan’s research focuses on the role of accounting in management decisions. Specifically, he examines the incentive effects of financial reports and disclosures on various managerial decisions both inside an organisation and within supply chains. His work has been published in leading academic journals, including The Accounting Review, Journal of Accounting and Economics, The Review of Accounting Studies, Contemporary Accounting Research, Management Science, and Production and Operations Management.

At ISB Professor Ramanan teaches the core Managerial Accounting course and the elective in Strategic Performance Management.

Professor Ramanan holds a PhD in Accounting from the Kellogg School of Management, Northwestern University, and an MBA from the Indian Institute of Management, Bangalore. He is also a Chartered Accountant.

Nv Ramanan
Ram Ramanan