Earnings Revisions in SEC Filings from Prior Preliminary Announcements*

Abstract

This paper investigates earnings revisions that occur between preliminary earnings announcements and the immediate subsequent SEC filings. On average, the absolute value of the revision is 2.9% of the market value of equity where earnings were revised by more than $100,000. We find that earnings revisions are more likely to occur for firms that are more complex, more financially leveraged, have greater earnings volatility, have losses and that have switched auditors. We find that investors react to the new information in the earnings revisions, but find mixed evidence about whether the act of revision itself indicates lower earnings quality to investors. Our findings suggest that financial analysts, investors and regulators alike should pay close attention not only to an earnings surprise at the preliminary earnings announcement date, but also at the SEC filing date to determine if a subsequent earnings surprise occurs.