Information Quality, Growth Options, and Average Future Stock Returns

Posted: 8 Mar 2018 Last revised: 20 Mar 2018

Date Written: February 28, 2018

Abstract

This study finds that the association between future stock returns and information quality depends on how option-like is the firm's equity. Firms that have more growth options are more option-like. The association between future stock returns and information quality is negative (positive) for those firms with equity that is least (most) option-like. These results are consistent with traditional asset pricing theory and are robust to numerous empirical specifications. Collectively, these findings offer a theoretically-based and empirically-supported explanation for why prior studies, that do not condition on the option-like nature of equity, have documented either a positive or no association between information quality and future average stock returns.

Keywords: Information Quality, Expected Returns, Stock Returns, Cost of Captial, Growth Options, Valuation

Suggested Citation

Lyle, Matthew R., Information Quality, Growth Options, and Average Future Stock Returns (February 28, 2018). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3131978

Matthew R. Lyle (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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