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On the timeliness of price discovery
WA Beekes
P Brown
Abstract
Price discovery is the process whereby value-relevant, private information becomes impounded or reflected in a stock's publicly-observable market price. The timeliness of price discovery refers to how quickly that process takes effect. There is no reason to believe either that all private information is discovered equally quickly or that price discovery is equally speedy for all firms. The latter observation suggests it would be worthwhile knowing why the timeliness of price discovery differs across firms, even the more so in an environment where all listed companies by law must disclose most material price-sensitive information as soon as they become aware of it. The other observation, that not all private information is discovered equally quickly, implies we should focus on a material, periodic event when we compare timeliness across firms. A good candidate is the announcement of the company's annual results, since for many years is has been known that annual earnings alone captures at least half the value-relevant information released by the average firm over the 12 months leading up to this date. We use various approaches to explore measures of timeliness and what they can tell us. We review a number of studies that have considered various aspects of timeliness in different countries and extend and contrast their findings. We also examine the relationship between the timeliness of price discovery and analogous measures based upon firms' formal disclosures to the share market and upon analysts' consensus earnings forecasts. Finally, we report on an issue of major concern to regulators and market operators, namely the influence of corporate governance on the timeliness of price discovery.
http://www.lums.lancs.ac.uk/publications/viewpdf/004499/
KV Peasnell
KP McMeeking
Abstract
This paper examines the effects of audit firm mergers and the demise of Andersens on market concentration, competitiveness and audit pricing in the UK. Our results indicate that the large audit firms increased their market share between 1985 and 2002 by merging and expanding into new sectors. However, contrary to popular belief, the significant fee discounting of the 1980’s was not sustained in the 1990’s. We also investigate what happened to audit fees after mergers between accounting firms. After the mergers in 1989/90 between Coopers and Lybrand and Deloitte and between Arthur Young and Ernst and Whinney, audit fees tended to increase. In contrast, audit fees fell on average after the 1997 merger between Price Waterhouse and Coopers and Lybrand. The merger between Deloitte and Andersens in 2002 appears not to have materially affected audit fees to date. Our results provide evidence that auditees are likely to pay higher fees if their auditor merges with a larger counterpart. Consistent with the quality differentiation theory, we attribute this result to increased returns to the brand name reputation of the smaller firms.
http://www.lums.lancs.ac.uk/publications/viewpdf/002160/
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P Brown
Abstract
Price discovery is the process whereby value-relevant, private information becomes impounded or reflected in a stock's publicly-observable market price. The timeliness of price discovery refers to how quickly that process takes effect. There is no reason to believe either that all private information is discovered equally quickly or that price discovery is equally speedy for all firms. The latter observation suggests it would be worthwhile knowing why the timeliness of price discovery differs across firms, even the more so in an environment where all listed companies by law must disclose most material price-sensitive information as soon as they become aware of it. The other observation, that not all private information is discovered equally quickly, implies we should focus on a material, periodic event when we compare timeliness across firms. A good candidate is the announcement of the company's annual results, since for many years is has been known that annual earnings alone captures at least half the value-relevant information released by the average firm over the 12 months leading up to this date. We use various approaches to explore measures of timeliness and what they can tell us. We review a number of studies that have considered various aspects of timeliness in different countries and extend and contrast their findings. We also examine the relationship between the timeliness of price discovery and analogous measures based upon firms' formal disclosures to the share market and upon analysts' consensus earnings forecasts. Finally, we report on an issue of major concern to regulators and market operators, namely the influence of corporate governance on the timeliness of price discovery.
http://www.lums.lancs.ac.uk/publications/viewpdf/004499/
The effect of audit firm mergers on audit pricing in the UK
PF PopeKV Peasnell
KP McMeeking
Abstract
This paper examines the effects of audit firm mergers and the demise of Andersens on market concentration, competitiveness and audit pricing in the UK. Our results indicate that the large audit firms increased their market share between 1985 and 2002 by merging and expanding into new sectors. However, contrary to popular belief, the significant fee discounting of the 1980’s was not sustained in the 1990’s. We also investigate what happened to audit fees after mergers between accounting firms. After the mergers in 1989/90 between Coopers and Lybrand and Deloitte and between Arthur Young and Ernst and Whinney, audit fees tended to increase. In contrast, audit fees fell on average after the 1997 merger between Price Waterhouse and Coopers and Lybrand. The merger between Deloitte and Andersens in 2002 appears not to have materially affected audit fees to date. Our results provide evidence that auditees are likely to pay higher fees if their auditor merges with a larger counterpart. Consistent with the quality differentiation theory, we attribute this result to increased returns to the brand name reputation of the smaller firms.
http://www.lums.lancs.ac.uk/publications/viewpdf/002160/
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