Accounting quality, information risk and implied volatility around earnings announcements

•Accounting accruals quality (AQ) is used as a proxy for corporate information risk.•AQ significantly affects option implied volatility around earnings announcements.•Worse AQ will increase equity option implied volatility before the announcement.•Worse AQ will decrease equity option implied volatility after the announcement.•Information risk has a significant effect on equity implied volatility behavior. We examine the impact of accounting quality, used as a proxy for information risk, on the behavior of equity implied volatility around quarterly earnings announcements. Using US data during 1996–2010, we observe that lower (higher) accounting quality significantly relates to higher (lower) levels of implied volatility (IV) around announcements. Worse accounting quality is further associated with a significant increase in IV before announcements, and is found to relate to a larger resolution in IV after the announcement has taken place. We interpret our findings as indicative of information risk having a significant impact on implied volatility behavior around earnings announcements.