Does Increased Investor Awareness Explain Positive Returns Around Earnings Announcements? Evidence from Earnings Notifications

Abstract

This paper explores the extent to which the awareness-increasing effect of earnings announcements explains positive returns around earnings announcements. Prior literature predicts positive returns around events that increase investor awareness of the firm. Earnings announcements are highly-publicized events likely to increase investor awareness. However, prior research attributes positive returns around earnings announcements to the effects of their information content rather than to their awareness-increasing effect. I find positive returns around earnings notifications, which share the awareness-increasing properties of earnings announcements but which disclose relatively little new information. I find that the awareness-increasing effect of earnings announcements is attenuated in the presence of earnings notifications and that earnings announcement returns are lower when firms initiate earnings notifications. I find a similar effect for non-earnings press releases in the month before the earnings announcement and when notification lead-times are shorter. These findings suggest that positive returns around earnings announcement are caused (in part) by the awareness-increasing effect of earnings announcements, independent of the information they contain.