Timely industry information as an assurance service--evidence on the information content of the book-to-bill ratio

• Published in: Auditing : a journal of practice and theory 1998-01, Vol.17, p.109
• Main Authors: Fargher, Neil L, Gorman, Larry R, Wilkins, Michael S
• Format: Article
• Language: English
• Subjects: Accounting firms; Assurance services; Correlation analysis; Disclosure; Financial ratios; Hypotheses; Investments; Sales; Semiconductors; Stock exchanges; Stock prices; Studies
• ISSN: 0278-0380; 1558-7991

Assurance services include independent professional services that improve the quality of information. One such service is the collection of confidential information from participating firms on behalf of an industry association and the release of summarized information to investors. The association between book-to-bill disclosures and common stock prices is evaluated. Statements in the financial press suggest that the book-to-bill index is an important indicator of future demand in the semiconductor industry. Because changes in the book-to-bill ratio signal impending changes in sales, the index may be relevant information for firm valuation. The results suggest that investors in semiconductor firms utilize the book-to-bill ratio in revising their expectations of future cash flows. Specifically, it is found that: 1. 8 of the 36 monthly book-to-bill announcements occurring during 1994 through 1996 produced share price reactions significant at the 10% level, and 2. the price response across the subset of "good news" disclosures is positively related to the change in the book-to-bill ratio.