Accounting Methods and Differential Stock Market Response to the Announcement of Earnings

1993 ◽  
Vol 8 (3) ◽  
pp. 221-246 ◽  
Author(s):  
Morton Pincus
Keyword(s):  
Stock Market ◽  
Earnings Announcements ◽  
Empirical Support ◽  
Order Effect ◽  
Cross Sectional ◽  
Market Reactions ◽  
Earnings Response Coefficients ◽  
Earnings Response ◽  
Reported Earnings ◽  
Stock Market Reactions

The objective of this study is to assess the extent to which previously documented cross-sectional differences in stock market responses to earnings announcements are associated with firms' in-place voluntary accounting method choices. The possibility that managers may manage reported earnings via the choice of accounting policies provides a motivation for the study. Some conjectures about differences in “noise” in earnings signals generated under alternative accounting methods are developed and tested by estimating firm-specific earnings response coefficients. Both individual method choices (e.g., LIFO versus FIFO) and accounting method portfolios (conservative versus liberal sets of depreciation, inventory, and investment tax credit accounting alternatives) are examined. Overall there is little empirical support for the proposition that voluntary accounting method choices have a pervasive first-order effect on stock market reactions to earnings announcements.

The Effect of Analyst Forecasts during Earnings Announcements on Investor Responses to Reported Earnings

2016 ◽  
Vol 92 (3) ◽  
pp. 239-263 ◽  
Author(s):  
Gerald J. Lobo ◽  
Minsup Song ◽  
Mary Harris Stanford
Keyword(s):  
Negative Impact ◽  
Earnings Announcements ◽  
Analyst Forecasts ◽  
Analyst Forecast ◽  
Management Forecasts ◽  
Cross Sectional ◽  
Earnings Response Coefficients ◽  
Forecast Revisions ◽  
Unexpected Earnings ◽  
Earnings Response

ABSTRACT Despite the increased frequency of analyst forecasts during earnings announcements, empirical evidence on the interaction between the information in the earnings announcement and these forecasts is limited. We examine the implications of reinforcing and contradicting analyst forecast revisions issued during earnings announcements (days 0 and +1) on the market response to unexpected earnings. We classify forecast revisions as reinforcing (contradicting) when the sign of analyst forecast revisions agrees (disagrees) with the sign of unexpected earnings. We document larger (smaller) earnings response coefficients for announcements accompanied by reinforcing (contradicting) analyst forecast revisions. Analyses of management forecasts suggest that analyst revisions and management forecasts convey complementary information. Cross-sectional tests show that investors react more to earnings announcements accompanied by analyst forecast revisions when there is greater consensus among analysts (lower dispersion) and that better earnings quality (higher persistence) mitigates the negative impact of contradictory analyst forecast revisions. JEL Classifications: D82; G29; M41.

scholarly journals Social sentiment segregation: Evidence from Twitter and Google Trends in Chile during the COVID-19 dynamic quarantine strategy

PLoS ONE ◽  
2021 ◽  
Vol 16 (7) ◽  
pp. e0254638
Author(s):  
Fernando Díaz ◽  
Pablo A. Henríquez
Keyword(s):  
Stock Market ◽  
Media Coverage ◽  
Google Trends ◽  
Cross Sectional ◽  
Market Reactions ◽  
The Public ◽  
Health Authorities ◽  
Stock Market Reactions ◽  
High Degree ◽  
The Impact

The Chilean health authorities have implemented a sanitary strategy known as dynamic quarantine or strategic quarantine to cope with the COVID-19 pandemic. Under this system, lockdowns were established, lifted, or prolonged according to the weekly health authorities’ assessment of municipalities’ epidemiological situation. The public announcements about the confinement situation of municipalities country-wide are made typically on Tuesdays or Wednesdays before noon, have received extensive media coverage, and generated sharp stock market fluctuations. Municipalities are the smallest administrative division in Chile, with each city broken down typically into several municipalities. We analyze social media behavior in response to the confinement situation of the population at the municipal level. The dynamic quarantine scheme offers a unique opportunity for our analysis, given that municipalities display a high degree of heterogeneity, both in size and in the socioeconomic status of their population. We exploit the variability over time in municipalities’ confinement situations, resulting from the dynamic quarantine strategy, and the cross-sectional variability in their socioeconomic characteristics to evaluate the impact of these characteristics on social sentiment. Using event study and panel data methods, we find that proxies for social sentiment based on Twitter queries are negatively related (more pessimistic) to increases in the number of confined people, but with a statistically significant effect concentrated on people from the wealthiest cohorts of the population. For indicators of social sentiment based on Google Trends, we found that search intensity during the periods surrounding government announcements is positively related to increases in the total number of confined people. Still, this effect does not seem to be dependent on the segments of the population affected by the quarantine. Furthermore, we show that the observed heterogeneity in sentiment mirrors heterogeneity in stock market reactions to government announcements. We provide evidence that the observed stock market behavior around quarantine announcements can be explained by the number of people from the wealthiest segments of the population entering or exiting lockdown.

Cross-quarter differential market reactions

2016 ◽  
Vol 28 (2) ◽  
pp. 219-235
Author(s):  
Andrew Lee ◽  
Chu Yeong Lim ◽  
Tracey Chunqi Zhang
Keyword(s):  
Audit Committee ◽  
Design Methodology ◽  
Earnings Quality ◽  
Earnings Announcements ◽  
Listed Companies ◽  
Market Reactions ◽  
Content Type ◽  
Earnings Response Coefficients ◽  
Earnings Response ◽  
Effect Hypothesis

Purpose The purpose of this paper is to investigate the audit effect hypothesis for the cross-quarter differential market reactions to earnings announcements. Design/methodology/approach Earnings response coefficients are focused upon as indicators of perceived earnings quality. Findings The evidence suggests that investors of Singapore listed companies respond more strongly to earnings announcements in the fourth quarter than other interim quarters. The findings support the notion that investors attach different degrees of reliability to interim quarter earnings relative to final quarter earnings. Originality/value Findings in this paper shed new light on the audit effect hypothesis and are relevant to accounting regulators and audit committee members seeking to enhance the credibility of earnings announcements.

scholarly journals CEO Duality: Newspapers and Stock Market Reactions

2021 ◽  
Vol 14 (1) ◽  
pp. 35
Author(s):  
Marco Caiffa ◽  
Vincenzo Farina ◽  
Lucrezia Fattobene
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Empirical Support ◽  
Market Reactions ◽  
Ceo Duality ◽  
Board Chair ◽  
Stock Market Reaction ◽  
Stock Market Reactions ◽  
News Sentiment ◽  
The Relationship

This study aims to investigate the unsettled issue of the relationship between CEO duality and a firm’s value through the perspective of investors’ reaction to news which mention apical directors with a single role and Board Chair CEOs. With a unique and hand-collected database of 60,805 newspaper articles, text-analysis, event-study and regression analysis methodologies were applied to capture news sentiment and study the direction and the magnitude of the stock market reaction. Results reveal that news mentioning Board Chair CEOs are negatively processed by investors, revealing a negative perception by investors about CEO duality. The study provides empirical support for the agency theory, in contrast to the stewardship theory, in the interpretation of CEO duality. It also proposes the methodology of systematically quantifying language to explore corporate governance issues and their link with financial markets.

COVID-19: Stock Market Reactions to the Shock and the Stimulus

2020 ◽  
Author(s):  
Maretno Agus Harjoto ◽  
Fabrizio Rossi ◽  
John Paglia
Keyword(s):  
Stock Market ◽  
Market Reactions ◽  
Stock Market Reactions
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