Have Earnings Announcements Lost Information Content?

Abstract

We investigate the potential historic decline in the information content of earnings announcements. Like Beaver (1968) we focus on the incremental information content of accounting earnings announcements—whether the announcements convey “new news” to the market as evidenced by unusual price movements. We investigate the price reaction to earnings announcements of a broad range of firms over a 23-year time period (1975 through 1997). We find that, on average, the price reaction to earnings announcements has increased over time. However, the robustness of this finding is called into question based on two factors. First, we find that the change in price reaction to earnings varies depending on the size of firms analyzed. Specifically, we find some evidence that small firms exhibit a decreasing price reaction to earnings announcements over time, while larger firms consistently exhibit an increasing price reaction to earnings announcements. Second, we find that a minority of firms drives the observed increase in price reaction indicating that a cross-sectional mean reaction does not imply such a reaction is typical for individual earnings announcements.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 19 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.