Work

The Effect of Limited Liability on the Market Response to Disclosure*

Year: 1997

Type: article

Abstract: . We formalize the effects of an earnings disclosure on security prices under an assumption of limited liability. We derive various nonlinear relations between equity prices and earnings under a variety of capital structure assumptions and. if possible, we tie the relations attained to results from the existing empirical literature. We also characterize how debt prices respond to earnings when holders of debt have limited liability. Finally, we analyze how changes in the degree of leverage and conversion features of debt affect the relation between price and earnings.

Source: Contemporary Accounting Research

DOI: 10.1111/j.1911-3846.1997.tb00539.x

Authors: PAUL E. FISCHER, ROBERT E. VERRECCHIA

Institution: University of Pennsylvania

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2072272947

FWCI: 16.37

Cites: 15

Cited by: 81

Related to: 10