Search Results (33)

With the recent increase in retail investor participation led by commission-less fintech trading applications and new features like fractional trading, we now have higher volatility and significantly quicker price changes. This makes it hard to make informed trading decisions. Moreover, these effects are exacerbated even further around earnings announcements days. In this paper, we use Nasdaq data feed at a minute frequency and show that there is a significant increase in the slope of the price–volume structure during extended hours (after-hours, or pre-market hours) as compared with the ones observed during regular market times. Our analysis shows that the liquidity is much less during the extended market hours. As such, earnings announcements of stocks during these times have a significantly larger price impact than those stocks that have their earnings announced during regular trading hours. This significant difference can be explained by observing the limit order book structures during these different trading periods. We suggest that the earnings announcements should not be made during extended hours given the significantly lower liquidity and thus, the significantly larger price impact that not only determines the prices for the next trading session but also sets the new “fundamental” price signals for the stocks. Full article

This paper challenges the prevailing view that intra-industry information transfers are primarily driven by public information. Contrary to conventional wisdom, I find that investors in late-announcing firms impound more private information after early-announcing peers report earnings. This increase is substantial, leading to an 18.2% decrease in analyst forecast consensus and a 24.9% increase in forecast precision. Moreover, the probability of informed trading rises by 2% on days with peer announcements. This finding is important because investors tend to overweight (underweight) private (public) signals, thereby exacerbating over- and underreaction anomalies. Our study confirms that these anomalies are more pronounced when early announcements stimulate private information production, offering a theoretical explanation for their puzzling coexistence. These findings have significant implications for investor behavior and market efficiency. Investors should diligently evaluate both public and private information, particularly following peer announcements. Policymakers can leverage these findings to design regulations that promote transparency and foster efficient information dissemination. Full article

This study investigates the occurrence and persistence of abnormal stock returns surrounding corporate earnings announcements, particularly emphasizing how varying frequencies of financial reporting influence market behavior. Specifically, this research examines the effects of the timing and frequency of disclosures on market reactions and stock price volatility during critical earnings announcement periods. By analyzing firms within the Dow Jones Industrial Average (DJIA) from 2014 to 2024, this study evaluates the interplay between financial reporting schedules and market responses to stock prices. Furthermore, it considers the impact of peer firms’ reporting practices on the assimilation of firm-specific information into stock prices. Using econometric models, including Vector Auto Regression (VAR), Impulse Response Functions (IRFs), and Self-Exciting Threshold Autoregressive (SETAR) models, causal relationships between reporting frequency, stock price volatility, and abnormal return patterns across different volatility regimes are identified. The findings highlight that quarterly reporting practices intensify market responses and contribute to significant variations in stock price behavior in high-volatility periods. These insights provide a deeper understanding of the role of financial disclosure practices and forward-looking guidance in shaping market efficiency. This study contributes to ongoing discussions about balancing the transparency benefits of frequent reporting with its potential to amplify market volatility and sector-specific risks, offering valuable implications for policymakers, investors, and corporate managers. Full article

Measuring the informativeness of earnings is of fundamental importance to accounting research. Both coefficients and R-squareds have been proposed as candidates for measuring the informativeness of earnings. However, recent research has focused substantially more on using coefficients, rather than R-squareds, to draw inferences. This paper first documents in a small theoretical model that under some circumstances, R-squareds map more closely to informativeness than coefficients. Second, this paper documents that in archival data, coefficients and R-squareds can draw opposite inferences regarding the informativeness of earnings and other performance measures up to 50% of the time. Third, this paper proposes an approach to provide statistical inference using R-squareds. Taken together, this paper suggests that rather than solely relying on coefficients, as is common in prior literature, R-squareds can also be used to measure the informativeness of earnings and other performance measures. Full article

Prior research finds mixed evidence that firms strategically manage their earnings announcement timing to either highlight or obscure financial information. While most prior studies focus on the specific timing and the nature of individual earnings announcements, we instead focus on the variability of firms’ annual earnings announcement dates (hereafter referred to as EADs) over a span of time. Using archival data collected from I/B/E/S and Compustat, we find that firms with fewer resources, weaker internal monitoring systems, and greater financial uncertainty are much more likely to exhibit increased EAD variability. Furthermore, we provide substantial evidence that the capital market’s response to earnings is noticeably weaker when a firm’s EAD variability is higher. Additional in-depth analysis reveals that firms exhibiting higher EAD variability tend to report significantly lower future performance in both the short- and long-term horizons. Consequently, while managers might intentionally alter an earnings announcement date to exploit variations in investor attention, this comprehensive study provides significant evidence that they should also consider how the market perceives and interprets the overall EAD variability. This understanding is crucial to improve strategic financial communication and maintain investor trust. Full article

This paper examines the market responses to concurrent earnings and stock split announcements for evidence on the information content of stock splits. The majority of stock split research excludes splits announced with other information events due to confounding issues. However, it is difficult to extract the information content of splits by merely focusing on the standalone split announcement because stock splits are devoid of any information regarding firms’ future cash flows. This study explicitly considers how a stock split is evaluated in conjunction with current earnings. This study shows that the market reacts more positively to earnings news concurrently announced with stock splits, consistent with the idea that splits are favorable news. Furthermore, this study finds that stock returns of concurrent split–earnings announcers exhibit a greater association with future cash flows, suggesting that investors should value stock splits favorably for more persistent earnings ahead. Full article

Several prior studies indicate that financial analysts exhibit systematic underreaction to information; others illustrate systematic overreaction. We assume that cognitive biases influence analysts’ behavior and that these misreactions are not systematic, but they depend on the nature of news. As cognitive biases intensify in situations of high ambiguity, we distinguish between bad and good news and investigate the impact of intangible assets—synonymous with high uncertainty and risk—on financial analysts’ reactions. We explore the effect of information conveyed by prior-year earnings announcements on the current-year forecast error. Our findings in the Saudi financial market reveal a tendency for overreaction to positive prior-year earnings change (good performance) and positive prior-year forecast errors (good surprise). Conversely, there is an underreaction to the negative prior-year earnings change (bad performance) and negative prior-year forecast error (bad surprise). Notably, analysts exhibit systematic optimism rather than systematic underreaction or overreaction. The results also highlight that the simultaneous phenomena of overreaction and underreaction is more pronounced in high intangible asset firms compared to low intangible asset firms. Full article

This paper examines the effects of Korea’s compulsory preliminary earnings announcements on stock prices using individual corporate financial disclosure data. Korea’s compulsory preliminary earnings announcements are similar to the US’s fair disclosures in that they are preliminary settlement disclosures. Disclosure regulation aims to prevent insider trading and resolve information asymmetry among investors by promptly disclosing unconfirmed internal settlement information prior to an external audit. The disclosure of such changes in profit or loss is generally expected to affect stock prices. Many studies have analyzed the relationship between accounting profit disclosure and stock prices, but most have focused on the relationship between net profit disclosure and stock price without considering other disclosure information such as sales and operating profit. In addition, previous studies analyzed the information effect of accounting profits based on annual reports, which are based on analysts’ predicted values and limited datasets. This study investigates the impact of Korea’s compulsory disclosure on stock prices through a multiple regression analysis, considering three types of accounting information, including sales, operating profit, and net profit, based on actual announcement data and daily trading volumes. The effect of corporate financial disclosure might vary with stock market type and industry sector. For this reason, we analyze the relationship between financial disclosure and stock prices for different stock market types and industry sectors. Results show that sales information affected KOSPI-listed companies’ stock prices, and operating profit information affected KOSDAQ-listed companies’ stock prices. In terms of financial market efficiency, the results show weak-form efficiency for both the KOSPI and KOSDAQ markets in general. However, this implies that there is still information asymmetry in sales information for the KOSPI, which consists of large and valued stocks and is not completely efficient, whereas information asymmetry might occur in operating profit information for the KOSDAQ, which consists of relatively small-to-medium innovative growing companies. In addition, results show that operating profits affect manufacturing industries’ stock prices, and that trading volumes significantly impact stock prices for all markets and industries. Full article

This paper aims to measure the effects of delisting on stock returns for the Vietnam stock market. This study employs a sample of 118 stocks that were compulsorily delisted from the market between January 2011 and December 2021. Using an event study methodology, the empirical findings confirm that the delisting has negative effects on stock returns in the Vietnam stock market. Specifically, results derived from tests show that the average abnormal return of delisted stocks continuously declines during three trading days following the announcement of delisting. Moreover, it is found that the differences in cumulative abnormal returns between post-delisting and pre-delisting periods are significantly negative for all tracking periods. Apart from the negative effect of delisting on stock abnormal returns, we also find that the impact of delisting on stock returns for smaller companies is greater than for bigger companies. These results imply that investors can earn abnormal returns by using delisting information in the Vietnam stock market. Full article

Global society’s comfort and well-established certainties have been unpredictably and foundationally undermined by the emergence of the COVID-19 virus. The announcement of the pandemic by the WHO has halted global economic activities, and the financial markets have recorded drastic losses. In this context of uncertainty and economic downturn, many traditional companies have been negatively impacted, but the biotechnology sector, which has already been growing for some years, registered high growth rates and earnings. In particular, this study focused on the two most significant biotech companies, BioNTech and Moderna, the two start-ups that first commercialized COVID-19 vaccines. The GARCH (1,1) model examines the relation of two stock prices and the volatility of derivatives markets before and after the outbreak of the pandemic. The variables used in the analysis are the U.S. technologic market index, the market volatility, and Brent future prices. The results suggest a different reaction of market volatility and Brent future prices on the return of both companies. Additionally, during the COVID-19 period, a contagion effect between both companies and the technological market was observed. Full article

Studies that quantify the price impact of the information in corporate press releases and news articles mainly focus on quantitative news, such as earnings announcements, dividends, and financial performance-related events, but leave out other corporate news events. Those that do so generally focus on one source of information and do not compare the price impacts from different information sources. Our study aimed to extend previous studies by quantifying and comparing market reactions to corporate press releases and news articles across different news categories. We classified and categorized 100,960 news items, encompassing 26,546 corporate press releases and 74,414 news articles, of 615 firms in the Stock Exchange of Thailand between 1 January 2017 and 31 December 2019. These news items were classified into categories based on the information contained in corporate press releases and news articles. We then studied the market reactions to these news categories. We found that the price impact from corporate releases is sustained for both positive and negative news categories. Our results also show that the positive price impact for news reported by the media tends to reverse, consistent with prior studies. In contrast, the negative price impact from news articles holds; this result differs from previous studies. Our data also show that managers tend to leak and recycle good news while the release of bad news is delayed. Full article

This study examines the efficiency of weekly option prices around firms’ earnings announcements. With most of the largest firms now having options that expire on a weekly basis, option traders can hedge or speculate on earnings news using options that expire very close to a firm’s earnings announcement date. For earnings announcements near an options expiration date, one can estimate a firm’s expected stock price move in response to its earnings news (i.e., its option implied earnings announcement move) as the price of its at-the-money straddle as a proportion of its stock price. This study tests whether differences between historical earnings announcement moves and option implied earnings announcement moves predict straddle returns. Through the analysis of portfolio returns and Fama–MacBeth regressions, this study finds that straddle returns are significantly higher (lower) when the historical earnings announcement move is high (low) relative to the option implied earnings announcement move. In contrast to prior research, this study does not find an association between straddle returns and historical volatility, historical earnings announcement volatility, implied volatility, or the difference between historical volatility and implied volatility. Overall, this study suggests that weekly straddle prices around earnings announcements are not optimally efficient. Full article

Despite the rapidly growing interest in ESG business management, it is not easily attainable for stakeholders to accurately assess the quality of the ESG activities of a firm due to several problems, including the exaggeration or greenwashing of the real ESG performance. This study investigates whether managerial opportunism, as revealed by earnings announcement behaviors, can be utilized as a hallmark to forecast the quality of ESG performance. Based on the tests using Korean firms, the empirical results show that opportunistic behaviors for earnings announcement announcements, such as the announcement on Friday, after market closing, and omitting preliminary earnings disclosure, are all negatively associated with the ESG performance score on an individual and also collective basis. Further analysis shows that firms with opportunistic strategies for earnings announcement tend to miss the disclosure on ESG activities as well. In sum, this study contributes to future research and policy-making by suggesting a new practical approach to analyzing the earnings announcement behaviors as a quick test to verify the corporate ESG performance. Full article

A semi-strong efficient market incorporates relevant new information immediately. Using an event study, we investigate whether and to what extent regular earnings announcements of Swiss companies listed on the Swiss Market Index show the expected effects in share prices. For this purpose, we test for abnormal returns caused by earnings announcements in the period from 2012 until 2022. In contrast to previous studies of the Swiss market, we find that deviations from analysts’ expected earnings lead to pronounced immediate movements in stock prices, as predicted by the semi-strong efficient market hypothesis. Pre- and post-announcement abnormal returns are modest and generally not statistically significant. Full article

There are many misconceptions around stock prices and stock splits, and the behavior of shareholders, investors, and managers based on such information, due to a number of confounding factors. This paper tests a few hypotheses using a selected database, concerning the question “Is the stock split attractive for companies?”—in another words, “Why do companies split their stock?”, “Why do managers split their stock?” (sometimes for no benefit), and “Why do shareholders agree with such decisions?”. We contribute to the existing knowledge through a discussion of a random code selection of nine events in recent (selectively chosen) years, observing the role of information asymmetries, and the returns and traded volumes before and after the event. Therefore, calculating the beta for each sample, it is found that stock splits (i) affect the market and slightly enhance the trading volume in the short term, (ii) increase the shareholder base for their firm, and (iii) have a positive effect on the liquidity of the market. We concur that stock-splitting announcements can reduce the level of information asymmetries. Investors readjust their beliefs in the firm, although most of the firms are mispriced in the stock split year. Full article