Abstract: We investigate the information content of firm operational efficiency as defined by its cash conversion cycle and address how it affects the price discovery process around quarterly earnings announcements. We find that better operational efficiency is associated with stronger market reaction to quarterly earnings announcements as reflected both in higher abnormal stock returns and trading volume. We document that the stronger response is attributed to the forward-looking information contained in firm operational efficiency with respect to firm future earnings and cash flows. Further analyses reveal that the market reaction does not fully incorporate this forward-looking information into prices. Together, our study sheds light on the information content of a financial-statements-based measure and reveals that market participants do not fully incorporate this information into stock prices. Hence, our study is of interest to regulators who seek to improve the informational efficiency of security prices, to managers who seek to better understand the extent to which security prices reflect firm-specific information, and to investors who wish to trade on fundamental information.