The use of the R2 as a measure of firm-specific information: A cross-country critique

Alves, Paulo and Peasnell, Ken and Taylor, Paul (2010) The use of the R2 as a measure of firm-specific information: A cross-country critique. Journal of Business Finance and Accounting, 37 (1). pp. 1-26. ISSN 1468-5957

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Abstract

Recent research uses the degree of stock returns co-movement as a measure of the quality of a country's information environment. It has been argued that stronger property rights, better corporate governance regimes and more efficient enforcement mechanisms lead to prices incorporating more firm-specific information and, therefore, co-moving less with the market. In this paper, we use a much more comprehensive international data set than in prior research, encompassing forty countries over twenty years, to evaluate the reliability of this approach in a cross-country setting and to analyse the behaviour of the measure used. Our results demonstrate severe limitations in the use of co-movement as a measure of information quality. We highlight the instability of the measure and show that it can produce results that are often difficult to reconcile with such an informational explanation

Item Type: Journal Article
Journal or Publication Title: Journal of Business Finance and Accounting
Additional Information: This is a pre-print of an article published in Journal of Business Finance and Accounting, 37 (1), 2010. (c) Wiley.
Uncontrolled Keywords: /dk/atira/pure/researchoutput/libraryofcongress/hf5601
Subjects:
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 31324
Deposited By: Mr Paul Taylor
Deposited On: 08 Jan 2010 09:41
Refereed?: Yes
Published?: Published
Last Modified: 19 Sep 2019 23:46
URI: https://eprints.lancs.ac.uk/id/eprint/31324

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