Discussion of The Influence of Quarterly Earnings Announcements on Investor Decisions As Reflected in Common Stock Price Changes

Abstract

The thrust of my remarks can probably best be analyzed after a brief delineation of some of the important areas of general agreement between Professor May and myself. The first major finding which was discussed in his paper was that the magnitude of common stock price-change responses in weeks of all types of quarterly earnings announcements was, in general, significantly greater than the average price change for nonannouncement weeks. This finding led to the conclusion that a significant demand exists for quarterly accounting data to be used by investors in actual decisions. I agree that in general there seems to exist in the financial community a significant demand for quarterly accounting data to be used in investment decision making. May also found that the relative price-change response to quarterly earnings announcements was less than responses to annual earnings announcements, but, with one exception, not significantly less. He then concluded from this finding that investors may be unaware of, or unable to take account of differences in the reliability of quarterly and annual accounting data. I also agree that some important investors are definitely unaware of potential differences in the reliability of quarterly and annual accounting data, and that there are some investors who are aware of them but unable to take account of such differences. It is also likely that there are some investors who are in the unenviable position of being both unaware of the differences, and, if they were aware, unable to take account of differences in reliability. Although there may be some slight levity in that last remark, it was partially intended to point to the difficulties in-