Unexpected Earnings, Firm Size, and Trading Volume Around Quarterly Earnings Announcements.

Abstract

Abstract ABSTRACT: This study hypothesizes and finds that both the magnitude and duration of the trading volume reaction to quarterly earnings announcements are increasing functions of unexpected earnings and decreasing functions of a factor affecting the availability of predisclosure information: firm size. In contrast to unexpected earnings, which are not known until earnings are actually announced, firm size can be assessed prior to the announcement. Evidence that market reactions to quarterly earnings announcements differ systematically with a variable such as firm size, whose value is known before the announcement, may be relevant to policymakers in evaluating the potential benefits of differential accounting disclosure requirements (especially those based on firm size). Additional analysis, however, also confirms the incremental value of the actual earnings disclosures: even after controlling for the already known firm size, unexpected earnings are still positively related to the magnitude and duration of the trading volume reaction.

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