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Assurance services include independent professional services that improve the quality of information. Once 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. An example of this type of service is the collection of industry-wide information for the Semiconductor Industry Association. The primary output from this process is the monthly release of a ratio of new orders received to chips shipped, known as the book-to-bill ratio.

We evaluate the association between book-to-bill disclosures and common stock prices. 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.

Our results suggest that investors in semiconductor firms utilize the book-to-bill ratio in revising their expectations of future cash flows. Specifically, we find (1) that eight of the 36 monthly book-to-bill announcements occurring during 1994 through 1996 produced share price reactions significant at the 10 percent level, and (2) that the price response across the subset of "good news" disclosures is positively related to the change in the book-to-bill ratio.


American Accounting Association

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Auditing: A Journal of Practice & Theory

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