Download or read book What Drives the Increased Informativeness of Earnings Announcements Over Time written by Daniel W. Collins and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Landsman and Maydew (2002) document that the information content of earnings announcements has increased over the past three decades, and Francis, Schipper, and Vincent (2002) conclude that expanded concurrent disclosures in firms' earnings announcements, especially the inclusion of detailed income statements, explain this increase. We posit and find that the temporal increase in the intensity of the market's reaction to Street earnings offers a competing explanation for the Landsman and Maydew finding. We also find that expanded concurrent disclosure of GAAP-based information contributes to the temporal increase in the information content of earnings announcements. However, unlike Francis et al., we find that the temporal increase in concurrent balance sheet and cash flow statement information dominates concurrent income statement information once we control for Street earnings.
Download or read book Trends in Earnings Management and Informativeness of Earnings Announcements in the Pre and Post Sarbanes Oxley Periods written by Daniel A. Cohen and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that firms' management of accounting earnings increased steadily from 1987 until the passage of the Sarbanes Oxley Act (SOX), with a significant increase during the period prior to SOX, followed by a significant decline after passage of SOX. However, the increase in earnings management preceding SOX was primarily in poorly performing industries. We also show that the informativeness of earnings increased steadily over time, and there was no significant change in earnings informativeness following the passage of SOX. Further, we find that earnings management increased the absolute informativeness of earnings, but reduced the informativeness for a given earnings surprise, as well as reduced the abnormal return for a given amount of earnings surprise. Finally, the evidence supports the hypothesis that the opportunistic behavior of managers, primarily related to the fraction of compensation derived from options, was significantly associated with earnings management in the period preceding SOX.
Download or read book The Changing Nature of Trading Volume Reactions to Earnings Announcements written by Richard A. Schneible Jr. and published by . This book was released on 2008 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document a change in the nature of trading volume reactions to quarterly earnings announcements over the time period 1976-2005. Consistent with Landsman and Maydew (2002), we find that the magnitude of abnormal trading volume around quarterly earnings announcements has increased over time and that this increase is greater for large firms than small firms. We show, however, that this trend has reversed the negative relation between firm size and trading volume documented by Bamber (1987). Applying insights from recent trading volume theory, we predict and provide evidence that the increase in abnormal trading volume across time and firm size is due to increases in pre-announcement private information. Specifically, we show that the component of abnormal trading volume associated with price change, which theory suggests reflects pre-announcement private information, is increasing across time and firm size. Our results suggest that investors are motivated to acquire private information prior to earnings announcements about firms that have relatively high quality information environments. Thus, our results have implications for policies aimed at reducing information asymmetry between investors by increasing public disclosure.
Download or read book Investor Information Demand written by Michael S. Drake and published by . This book was released on 2014 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this study is to investigate factors that influence investor information demand around earnings announcements and to provide insights into how variation in information demand impacts the capital market response to earnings. The internet is one channel through which public information is disseminated to investors and we propose that one way that investors express their demand for public information is via Google searches. We find that abnormal Google search increases about two weeks prior to the earnings announcement, spikes markedly at the announcement, and continues at high levels for a period after the announcement. This finding suggests that information diffusion is not instantaneous with the release of the earnings information, but rather is spread over a period surrounding the announcement. We also find that information demand is positively associated with media attention and news, and is negatively associated with investor distraction. When investors search for more information in the days just prior to the announcement, pre-announcement price and volume changes reflect more of the upcoming earnings news and there is less of a price and volume response when the news is announced. This result suggests that when investors demand more information about a firm, the information content of the earnings announcement is partially preempted.
Download or read book How Important are Earnings Announcements as an Information Source written by Sudipta Basu and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Earnings announcement days on average provide more information to the stock market than any other days in each quarter. In particular, the proportions of the variation in annual returns explained by returns on days with dividend announcements, management forecasts, preannouncements, or 10-K and 10-Q filings are consistently lower than the 11% explained by earnings announcement days. Only the largest realized absolute daily returns in a quarter match the ability of earnings announcement returns to explain annual returns. We conclude that earnings announcements are individually the most important source of new information in the equity market. Earnings announcement days are likely to remain a preferred setting for testing theories about production, dissemination, and use of information (both accounting and non-accounting) in the equity market.
Download or read book How Much New Information is There in Earnings written by Ray Ball and published by . This book was released on 2009 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We quantify the relative importance of earnings announcements in providing new information to the share market, using the r-squared in a regression of securities' calendar year returns on their four quarterly earnings announcement window returns. The r-squared, which averages approximately five to nine percent, measures the proportion of total information incorporated in share prices over a year that is associated with earnings announcements. We conclude that the average quarterly announcement is associated with approximately one to two percent of total annual information and one quarter of one percent of annual trading volume, thus providing only a modest amount of incremental information to the market. The results are consistent with the view that the primary economic role of reported accounting earnings is not to provide timely new information to the share market, and by inference lies elsewhere, for example in settling contracts (Watts and Zimmerman, 1986) and in disciplining prior expectational information (Gigler and Hemmer, 1998; Ball, 2001). We also report increased information during earnings announcement windows in recent years, particularly in larger firms, due in part to increased concurrent releases of management forecasts. There is a convex relation between relative informativeness during earnings event windows and firm size. There is no evidence of abnormal information arrival in the weeks surrounding earnings announcements. Substantial information is released in analyst forecast revisions prior to earnings announcements, but not after.
Download or read book The Handbook of Equity Market Anomalies written by Leonard Zacks and published by John Wiley & Sons. This book was released on 2011-08-24 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
Download or read book Forward Looking Earnings Statements written by Gregory S. Miller and published by . This book was released on 2013 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper identifies cross-sectional factors that motivate the disclosure of forward-looking earnings information and documents that these disclosures impact market prices by quot;pulling forwardquot; future earnings information. We examine a set of firms facing poor current earnings performance, undervaluation concerns, investor neglect and extreme pessimism and find significant cross-sectional variation regarding whether these firms provide forward-looking earnings information to correct market misperceptions in advance of the earnings announcement. Consistent with existing theory, firms with stronger and more persistent earnings news are more likely to provide forward-looking disclosures during the turnaround period. Moreover, we find that firms operating in high litigation industries, possessing strong institutional ownership, having greater stock option-based compensation and facing larger non-equity stakeholders are more likely to provide disclosures. Alternatively, we find evidence that the use of alternative financial signaling mechanisms (share repurchases and dividend increases) lowers the probability that managers will make forward-looking disclosures. Market-based tests indicate that the disclosed information is value-relevant. The market responds in a significantly positive manner to forecasts of earnings (i.e., forward-looking statements provided outside of earnings announcements) as well as to forward-looking statements bundled in current earnings announcements (after controlling for the current period's earnings information). Furthermore, these responses are positively correlated with future seasonally-adjusted changes in earnings, indicating the disclosures are effective in pulling forward future mandatory information. Finally, the market reaction to the announcements of previously preempted earnings is less than that of unpreempted earnings, providing additional evidence that the disclosures are effectively pulling-forward the eventual mandatory earnings information.
Download or read book Investment Philosophies written by Aswath Damodaran and published by John Wiley & Sons. This book was released on 2012-07-31 with total page 615 pages. Available in PDF, EPUB and Kindle. Book excerpt: The guide for investors who want a better understanding of investment strategies that have stood the test of time This thoroughly revised and updated edition of Investment Philosophies covers different investment philosophies and reveal the beliefs that underlie each one, the evidence on whether the strategies that arise from the philosophy actually produce results, and what an investor needs to bring to the table to make the philosophy work. The book covers a wealth of strategies including indexing, passive and activist value investing, growth investing, chart/technical analysis, market timing, arbitrage, and many more investment philosophies. Presents the tools needed to understand portfolio management and the variety of strategies available to achieve investment success Explores the process of creating and managing a portfolio Shows readers how to profit like successful value growth index investors Aswath Damodaran is a well-known academic and practitioner in finance who is an expert on different approaches to valuation and investment This vital resource examines various investing philosophies and provides you with helpful online resources and tools to fully investigate each investment philosophy and assess whether it is a philosophy that is appropriate for you.
Download or read book Changes in Analysts Information Around Earnings Announcements written by Orie E. Barron and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study we examine changes in the precision and the commonality of information contained in individual analysts' earnings forecasts, focusing on changes around earnings announcements. Using the empirical proxies suggested by the Barron et al. (1998) model that are based on the across-analyst correlation in forecast errors, we find that the commonality of information among active analysts significantly decreases around earnings announcements. We also find that the idiosyncratic information contained in these individual analysts' forecasts increases significantly immediately after earnings announcements, and this increase is more significant as more analysts revise their forecasts. These results are consistent with theories positing that an important role of accounting releases is to trigger the generation of idiosyncratic information by elite information processors such as financial analysts (Kim and Verrecchia 1994, 1997).
Download or read book Earnings Announcement Disclosures and Changes in Analysts Information written by Orie E. Barron and published by . This book was released on 2016 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines how financial disclosures made with earnings announcements affect analysts' information about future earnings, focusing on disclosures of financial statements and management earnings forecasts. We find that disclosures of balance sheets and segment data are associated with an increase in the degree to which analysts' forecasts of upcoming quarterly earnings are based on private information. Further analyses show that balance sheet disclosures are associated with an increase in the precision of both analysts' common and private information, segment disclosures are associated with an increase in analysts' private information, and management earnings forecast disclosures are associated with an increase in analysts' common information. These results are consistent with analysts processing balance sheet and segment disclosures into new private information regarding near-term earnings. Additional analysis of conference calls shows that balance sheet, segment, and management earnings forecast disclosures are all associated with more discussion related to these items in the questions-and-answers section of conference calls, consistent with analysts playing an information interpretation role with respect to these disclosures.
Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Download or read book Advances in Quantitative Analysis of Finance and Accounting New Series Vol 15 written by Cheng F. Lee and published by Center for PBBEFR & Airiti Press. This book was released on 2017-01-01 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Advances in Quantitative Analysis of Finance and Accounting (New Series) is an annual publication designed to disseminate developments in the quantitative analysis of finance and accounting. The publication is a forum for statistical and quantitative analyses of issues in finance and accounting as well as applications of quantitative methods to problems in financial management, financial accounting, and business management. The objective is to promote interaction between academic research in finance and accounting and applied research in the financial community and the accounting profession.
Download or read book Using Earnings Announcement Returns as Evidence of Mispricing written by Dennis J. Chambers and published by . This book was released on 2004 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Numerous studies have used the proportion of anomalous returns earned during earnings announcement intervals as evidence to distinguish between risk and mispricing explanations for those returns. This approach implicitly assumes that returns expected as compensation for risk-bearing are earned evenly through time. However, previous research also suggests that expected returns may be higher at earnings announcements than at other times when the flow of firm-specific information between earnings announcements is sparse and the disclosure of earnings is expected to resolve significant uncertainty. We provide evidence that returns are more concentrated at earnings announcements for firms with low information flow than for firms with high information flow. We then demonstrate that earnings announcement returns concentrations associated with the well-known book-to-market returns anomaly are no longer evident after controlling for cross-firm variation in information flow. Overall, our results suggest that before interpreting a concentration of anomalous returns at earnings announcements as evidence of mispricing, care should be taken to insure that the concentration is not related to information flow.
Download or read book Evidence of a Recent Increase in the Usefulness of Quarterly Earnings Announcements written by Michael J. Smith and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: I document a recent increase in the usefulness of quarterly earnings announcements. I measure the usefulness of earnings announcements as the percentage of total annual excess returns that occurs on or around quarterly earnings announcements. In the main sample, approximately 18.4% of uncertainty is resolved by quarterly earnings announcements from 2002-2005 compared to 14.5% from 1976-2001, an increase of 27%. I include firm-specific controls for variations in an individual firm's underlying characteristics, information environment, voluntary disclosure, and a proxy for the amount of other information in earnings announcements. I create a quarterly variation of my annual measure, allowing me to track changes in usefulness on a month-by-month basis. Informal analysis suggests that the increase in usefulness begins in June 2002, the first month for which the filing date of the 10-Ks and 10-Qs associated with the earnings announcements is after the implementation of, and therefore subject to, SOX.
Download or read book Soft Information in Earnings Announcements written by Elizabeth Demers and published by . This book was released on 2008 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether the "soft" information contained in the text of management's quarterly earnings press releases is incrementally informative over the company's reported "hard" earnings news. We use Diction, a textual-analysis program, to extract various dimensions of managerial net optimism from more than 20,000 corporate earnings announcements over the period 1998 to 2006 and document that unanticipated net optimism in managers' language affects announcement period abnormal returns and predicts post-earnings announcement drift. We find that it takes longer for the market to understand the implications of soft information than those of hard information. We also find that the market response varies by firm size, turnover, media and analyst coverage, and the extent to which the standard accounting model captures the underlying economics of the firm. We also show that the second moment of soft information, the level of certainty in the text, is an important determinant of contemporaneous idiosyncratic volatility, and it predicts future idiosyncratic volatility.
Download or read book Beaver 1968 Revisited written by Wayne R. Landsman and published by . This book was released on 2012 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 1968, Beaver published his seminal paper on the information content of earnings announcements, establishing that both trading volume and return volatility increase at the time of earnings announcements. Thirty-some years after Beaver's study, concerns have been raised about a perceived degradation in the informativeness of earnings because of the increasing availability of timely non-accounting information and the increasing rate of technological innovation and change not reflected in the accounting system in a timely manner.In this paper we examine changes over the past thirty years in the information content of earnings using the two metrics from Beaver (1968): abnormal trading volume and volatility. In contrast to the conventional wisdom, we find no evidence of a decline in the informativeness of accounting information over the past thirty years, as measured by both abnormal trading volume and return volatility around quarterly earnings announcements. If anything, our results suggest an increase over time in the informativeness of quarterly earnings announcements. Variables reflecting changes in firm-specific factors account for a portion of the observed increase.
