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

Assurance services include independent professional services that improve t he quality of information. One such service is the collection of confidenti al information from participating firms on behalf of an industry associatio n and the release of summarized information to investors. An example of thi s type of service is the collection of industry-wide information for the Se miconductor Industry Association. The primary output from this process is t he monthly release of a ratio of new orders received to chips shipped, know n as the book-to-bill ratio. We evaluate the association between book-to-bill disclosures and common sto ck prices. Statements in the financial press suggest that the book-to-bill index is an important indicator of future demand in the semiconductor indus try. 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. Specific ally, we find (1) that eight of the 36 monthly book-to-bill announcements o ccurring during 1994 through 1996 produced share price reactions significan t at the 10 percent level, and (2) that the price response across the subse t of "good news" disclosures is positively related to the change in the boo k-to-bill ratio.