Asymmetric Timeliness and the Resolution of Investor Disagreement and Uncertainty at Earnings Announcements

2019 ◽  
Vol 95 (4) ◽  
pp. 23-50 ◽  
Author(s):  
Mary E. Barth ◽  
Wayne R. Landsman ◽  
Vivek Raval ◽  
Sean Wang
Keyword(s):  
Stock Returns ◽  
Earnings Announcements ◽  
Investment Decisions ◽  
Bad News ◽  
Positive Relation ◽  
Potential Cost ◽  
Earnings Announcement ◽  
Asymmetric Timeliness ◽  
Valuation Uncertainty ◽  
Investor Disagreement

ABSTRACT This study finds that greater asymmetric timeliness of earnings in reflecting good and bad news is associated with slower resolution of investor disagreement and uncertainty at earnings announcements. These findings indicate that a potential cost of asymmetric timeliness is added complexity from requiring investors to disaggregate earnings into good and bad news components to assess the implications of the earnings announcement for their investment decisions. Such a disaggregation impedes the speed with which investor disagreement and uncertainty resolve. The findings indicate that asymmetric timeliness also delays price discovery at earnings announcements. We also find a positive relation between asymmetric timeliness and stock returns during the earnings announcement period after the initial price reaction to the announcement, which is consistent with resolution of valuation uncertainty. However, we do not find clear evidence of more net stock purchases during this period by insiders of firms with greater asymmetric timeliness. JEL Classifications: M41; G14.

Dark Market Share around Earnings Announcements and Speed of Resolution of Investor Disagreement

2021 ◽  
Author(s):  
Karthik Balakrishnan ◽  
Xanthi Gkougkousi ◽  
Wayne R. Landsman ◽  
Peeyush Taori
Keyword(s):  
Market Share ◽  
Earnings Announcements ◽  
Accounting Information ◽  
Market Quality ◽  
Informational Efficiency ◽  
Positive Relation ◽  
High Quality ◽  
Earnings Announcement ◽  
Market Fragmentation ◽  
Investor Disagreement

This study examines how the market share of dark venues changes at earnings announcements. Our analysis shows a statistically significant increase in dark market share in the weeks prior to, during, and following the earnings announcement. We also predict and find evidence that increases in dark market share around earnings announcements are higher for firms with high quality accounting information. In addition, we find a positive relation between the change in dark market share and the speed of resolution of investor disagreement-a key dimension of informational efficiency, which suggests that dark trading is associated with an improvement in market quality. How market fragmentation changes around news events, the role accounting information plays in market fragmentation, and how changes in market fragmentation relate to market quality can help provide insights to securities regulators.

Is Openness Penalized? Stock Returns around Earnings Warnings

2007 ◽  
Vol 82 (4) ◽  
pp. 1055-1087 ◽  
Author(s):  
Jennifer W. Tucker
Keyword(s):  
Stock Returns ◽  
Selection Bias ◽  
Selection Model ◽  
Bad News ◽  
Short Term ◽  
Heckman Selection Model ◽  
Earnings Announcement ◽  
Self Selection ◽  
Earnings Warnings ◽  
Heckman Selection

Prior research finds that firms warning investors of an earnings shortfall experience lower returns than non-warning firms with similar risks and earnings news. Openness thus appears to be penalized by investors. Yet, this finding may be due to a self-selection bias that occurs when firms with a larger amount of unfavorable non-earnings news (“other bad news”) are more likely to warn. In this paper I use a Heckman selection model to infer the amount of other bad news and document that, on average, warning firms have a larger amount of other bad news than non-warning firms. After controlling for this effect, I find that warning firms' returns remain lower than those of non-warning firms in a short-term window ending five days after earnings announcement. When this window is extended by three months, however, warning and non-warning firms exhibit similar returns. My evidence suggests that openness is ultimately not penalized by investors.

scholarly journals Quarterly Earnings Announcement Effect on Stock Return and Trading Volume in Nepal

2019 ◽  
Vol 4 ◽  
pp. 32-47
Author(s):  
Jeetendra Dangol ◽  
Ajay Bhandari
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Trading Volume ◽  
Earnings Announcements ◽  
Good News ◽  
Fiscal Year ◽  
Event Analysis ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Analysis Methodology

The study examines the stock returns and trading volume reaction to quarterly earnings announcements using the event analysis methodology. Ten commercial banks with 313 earnings announcements are considered between the fiscal year 2010/11 and 2017/18. The observations are portioned into 225 earning-increased (good-news) sub-samples and 88 earning-decreased (bad-news) sub-samples. This paper finds that the Nepalese stock market is inefficient at a semi-strong level, but there is a strong linkage between quarterly earnings announcement and trading volume. Similarly, the study provides evidence of existence of information content hypothesis in the Nepalese stock market.

The Effect of Reporting Streaks on Ex Ante Uncertainty

2020 ◽  
Vol 66 (8) ◽  
pp. 3771-3787 ◽  
Author(s):  
Thaddeus Neururer ◽  
George Papadakis ◽  
Edward J. Riedl
Keyword(s):  
Stock Returns ◽  
Earnings Announcements ◽  
Earnings Announcement ◽  
Risk Premiums ◽  
Quarterly Earnings ◽  
Earnings Per Share ◽  
Ex Ante ◽  
Variance Risk ◽  
Analyst Earnings ◽  
Lower Uncertainty

This paper predicts and finds that investor uncertainty surrounding a key information release event—the earnings announcement—is decreasing in a firm’s reporting streak. We use two proxies related to investor ex ante uncertainty and corresponding pricing of such uncertainty: option-implied volatilities and variance risk premiums; both are measured with maturities surrounding the impending quarterly earnings announcement. Consistent with prior research, we measure reporting streak as the number of consecutive quarters the firm meets or beats the consensus analyst earnings-per-share forecast. Empirical results confirm expectations that the two uncertainty-related constructs are decreasing in the length of the reporting streak. These results, combined with further evidence documenting that lower uncertainty leads to lower stock returns surrounding the earnings announcements, suggest that longer reporting streaks reflect lower risk during earnings announcements. This paper was accepted by Shiva Rajgopal, accounting.

Expectations Management and Stock Returns

2019 ◽  
Vol 33 (10) ◽  
pp. 4580-4626 ◽  
Author(s):  
Travis L Johnson ◽  
Jinhwan Kim ◽  
Eric C So
Keyword(s):  
Stock Returns ◽  
Cross Section ◽  
Earnings Announcements ◽  
Performance Expectations ◽  
Earnings Announcement ◽  
Expectations Management ◽  
The Cross ◽  
Earnings Targets

Abstract We establish a link between firms managing investors’ performance expectations, earnings announcement premiums, and cyclical patterns (i.e., seasonalities) in returns. Firms that are more likely to manage expectations toward beatable levels predictably earn lower returns before, and higher returns during, their earnings announcements. This pattern repeats across firms’ fiscal quarters, suggesting firms manufacture positive “surprises” by negatively biasing investors’ expectations ahead of announcing earnings. We corroborate these findings using non-price-based outcomes indicative of expectations management. Together, our findings are consistent with the pressure for firms to meet earnings targets shaping the cross-section of firms’ stock returns.

scholarly journals Post-Earning Announcement Drift and Value-Glamour Anomalies in NSE Listed Firms

2021 ◽  
Vol 15 (37) ◽  
Author(s):  
Pankaj Kumar Gupta ◽  
Devendra Kumar Dhusia
Keyword(s):  
Stock Returns ◽  
Earnings Announcements ◽  
Abnormal Returns ◽  
Strong Support ◽  
Earning Announcement ◽  
Market Anomalies ◽  
Earnings Announcement ◽  
Earnings Response Coefficients ◽  
Abnormal Stock Returns ◽  
The Impact

Purpose of the article: Of the various market anomalies, the Value-Glamour anomaly and Post-Earnings Announcement Drifts (PEAD) have consistently attracted the attention of researchers. Prior studies have established that the reaction of value stocks and glamour stocks to the earnings announcement differs significantly and there is a close relationship between the PEAD and abnormal returns arising due to earning announcement surprises. We have studied the drift patterns of various value and glamour portfolios and tested whether the direction of the earnings announcement abnormal return is opposite to that of earnings surprise in the Indian market.Methodology: We use the statistics of 100 firms listed on the NSE for a sample period of 2014–2018. We use a set of 1130 observations analysed using the expectations formation approach around earnings and evaluate the post earnings announcement drift. We use the Earnings Response Coefficients to find the association between abnormal stock returns and earnings surprises.Scientific aim: The aim of this research is to improve the knowledge of market anomalies in developing markets such as India focusing on the impact of earnings announcement on growth and value stocks.Findings: We find that a negative association of abnormal stock returns with surprise in accounting earnings announcements. The stocks, which are overvalued or undervalued, are properly priced after the earnings announcements. Our results refute the earlier studies evidencing the strong support in favour of market inefficiency in the Indian context, particularly with respect to publicly available earnings information.Conclusions: The Indian stock market tends to be efficient with respect to earnings announcements and therefore does not produce excessive returns. However, a heterogeneity with respect to earnings announcement may exist among the category of stocks depending upon liquidity position. Superior returns cannot be derived by traders and investors on a consistent basis from value-glamour anomaly.

Are Investors Influenced by the Order of Information in Earnings Press Releases?

2020 ◽  
Author(s):  
Lin Cheng ◽  
Darren T. Roulstone ◽  
Andrew Van Buskirk
Keyword(s):  
Experimental Evidence ◽  
Earnings Announcements ◽  
Negative Information ◽  
Positive Relation ◽  
Press Releases ◽  
Cognitive Effect ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Earnings Information ◽  
Earnings Press Releases

We examine how the ordering of information within quarterly earnings announcements influences investor response to those announcements. Specifically, we examine whether earlier discussion of earnings information, and earlier discussion of qualitatively positive or negative information, is associated with stronger responses to that information. Controlling for the linguistic content of the earnings announcement, we find a positive relation between investor response to information and the prioritization of that information in the earnings announcement. We find no evidence of investor overreaction and, to the contrary, find some evidence that investors underreact to prioritized information. Our evidence, in conjunction with experimental evidence in Elliott (2006), suggests that information placement influences investors' responses. However, unlike the experimental evidence in Elliott (2006), our archival results suggest that investor response to information placement is warranted, rather than the result of an unintentional cognitive effect.

Institutional Holdings and Trading Volume Reactions to Quarterly Earnings Announcements

1997 ◽  
Vol 12 (1) ◽  
pp. 1-14 ◽  
Author(s):  
Jeong-Bon Kim ◽  
Itzhak Krinsky ◽  
Jason Lee
Keyword(s):  
Trading Volume ◽  
Earnings Announcements ◽  
Institutional Ownership ◽  
Positive Relation ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Price Reaction ◽  
Institutional Holdings ◽  
Abnormal Trading Volume

This paper empirically examines the incremental relation between trading volume surrounding quarterly earnings announcements and institutional holdings. Consistent with Cready (1988) and Lee (1992), we find a significant positive relation between abnormal trading volume and the fraction of institutional ownership during the period immediately following an earnings announcement, after controlling for the magnitude of the associated price reaction and the dispersion of analysts' EPS forecasts. The results are robust to various measures of abnormal trading volume. Our findings suggest that newly released information does not necessarily have the same value to heterogeneous investor types and support Lev's (1988) emphasis on the importance of focusing on investor classes.

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