A Comparison of the Effects of Earnings Disclosures on Information Asymmetry: Evidence from France and the U.S.

Abstract

This study investigates how the release of interim and annual earnings announcements affects information asymmetry in the French and U.S. stock markets. There appears to be a high degree of market scrutiny around interim earnings announcement dates in the U.S. market. Asymmetric information situations may exist prior to interim earnings announcements, but they are quickly resolved after the earnings announcement. In France, investors seem to pay greater attention to annual earnings announcements than to semi-annual earnings announcements, leading to a higher degree of information asymmetry around the semi-annual announcement dates. Thus, spreads are wider for semi-annual earnings announcements than for annual earnings announcements. This result confirms prior studies showing that earnings disclosures do not help to reduce information asymmetry in code-law countries, such as France. Moreover, accounting variables such as extent of accruals in operating expenses, unusual expenses, or the proportion of extraordinary items in annual earnings have a significant impact on spreads. Variables related to analysts' forecasts such as number of estimates, dispersion, and earnings surprises also influence information asymmetry among investors.