Abstract
We investigate the narratives accompanying earnings announcements made by industry-leading companies (leaders) to determine whether there are information transfers for narratives in the same way there are for earnings announcements. For a group of industry-leading firms with quarterly losses, we find evidence that when their CEO attributes the company's poor performance to external causes (defensive attributions) or issues negative industry forecasts, the market’s reaction to industry followers is strongly more negative and more persistent than when the CEO issues internal attributions or positive industry forecasts. Our findings of a persistent price decline occur despite the subsequent release of positive earnings surprises by industry followers. Our results suggest that the market overreacts to the information in industry leaders’ narratives and followers’ stock prices suffer significant price declines that are only partially corrected. We characterize investors’ behavior as an overreaction potentially due to their attentional constraints.
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