The Impact of Accounting Disclosures and the Regulatory Environment on the Information Content of Earnings Announcements

We investigate how accounting standards and the regulatory environment influence the usefulness of accounting information. Prior research finds no market reaction to earnings announcements in Mexico during the late 1990s. However, beginning in 1999, a series of regulatory changes required firms' compliance with a governance code and mandated electronic quarterly reporting. Additionally, in 2007 Mexico reissued their accounting standards to converge toward IFRS. We hypothesize that the market reacts to earnings announcements following the implementation of these changes in the reporting environment. Our results support our hypothesis. We also hypothesize and find evidence of a price reaction to earnings announcement for most share classes, and a volume reaction to earnings announcements for all share classes. Finally, we find support for our hypothesis that the firm's information environment affects the market reaction to earnings announcements. Overall, our findings suggest that the information content of earnings announcements has increased in the new reporting environment.